Experts are bullish on Nevada’s overall economy this year, anticipating continued recovery from the recession and growth, they said. Four key markers support their outlook:
Wages: The average private weekly wage for Nevada workers peaked in October at $758.86, representing a 2.3 percent year-over-year increase, according to Applied Analysis, a Las Vegas-based economic fiscal and policy research firm.
Construction activity: A dead industry during the recession, construction now is the Silver State’s fastest growing sector. Construction employment as of October was up 13 percent year over year.
Discouraged workers: The number of discouraged workers, those who’ve left the labor force because they can’t find a job, has dropped by about 55 percent, from an average of 17,600 Nevadans at its height in mid-2012 to 8,000 as of June 2016, Nevada Department of Employment, Training and Rehabilitation (DETR) data show.
Gross domestic product (GDP): Nevada’s GDP has shown significant, continual growth over the past five years, exceeding that of the U.S., statistics from the University of Nevada, Las Vegas (UNLV) Center for Business and Economic Research (CBER) reveal.
“All of these indicators show a healthy, stable, and growing economy,” said Dan Soderberg, director, DETR.
Further, the pipeline of development in Nevada is as robust as it’s been in the last decade, with $30 billion in projects planned, proposed or underway, which could drive additional demand for goods and services locally, said Jeremy Aguero, principal analyst, Applied Analysis. For instance, Tesla Motor Co. in the north should achieve full operations this year, which is expected to help bolster the state’s economy, said Brian Bonnenfant, project manager, Center for Regional Studies at the University of Nevada, Reno (UNR).
Despite the positives, however, the pace of job creation is slowing, which denotes similar movement of the economy as a whole, Aguero said.
“The timeline between the last economic downturn we had and the growth cycle would suggest that we are about due for another cycle to trend down,” he added.
Additionally, some of the changes the Trump administration and Congress make, which currently are unknowns, potentially could impact, negatively or positively, some industries, such as healthcare and finance, along with Nevada’s entire economy, said Dr. Stephen Miller, director, UNLV’s CBRE.
Given the general forecasted economic backdrop, the following is what Nevadans can expect in specific areas this year.
Nevada should experience continued employment growth as the manifestation of extensive past economic development and infrastructure achievements, Aguero said. Those include efforts surrounding Resorts World, Switch, Hyperloop, the UNLV School of Medicine, Project Neon (widening of 3.7 miles of Interstate 15 in downtown Las Vegas) and the USA Parkway (linking Highway 50 and Interstate 80 in Storey County).
“What we’re going to see, in terms of employment, thankfully, is that we are starting to reap what we’ve sown,” Aguero added.
DETR estimates 30,000 new jobs will come online in Nevada this year, 2,000 fewer jobs than in 2016’s first 10 months, another indication of slowing.
The largest employment gains will occur in construction, trade/transportation/utilities, professional/business services, healthcare and leisure/hospitality, Soderberg said. Las Vegas and Reno-Sparks are the two areas that will see the biggest boon.
With increased employment opportunities, the Silver State’s jobless rate is projected to hover around 5.4 percent, a decrease from 2016’s average through October of 6 percent.
The top three drivers of Nevada employment will be diversification among the various industries, state population growth and increasing visitor counts, Soderberg added.
The northern region’s tourism continues to strengthen following the recession, and the numbers show the trend should continue this year, said John Farahi, Reno-Sparks Convention & Visitors Authority (RSCVA) board member and head of its finance committee. He also is CEO of Reno-based Monarch Casino & Resort Inc.
As of early December, UNR’s Center for Regional Studies expected visitor counts for calendar year 2016 to hit 4.9 million, compared to 4.7 million in 2015, Bonnenfant said.
The RSCVA projected taxable room rates are expected to exceed $300 million by the end of fiscal 2015-2016 year this June, according to its Annual Forecast and Capital Budget. This would mark the second time that’s happened in Washoe County’s history, the first immediately preceding the recession. In fiscal year 2016-2017, room rates are anticipated to jump to $322 million.
The region, however, lacks sufficient bookings of conventions and meetings three to five years out, a foundation upon which to build, Farahi said, and the RSCVA isn’t filling its facilities like it should be.
“The room base is too large to just be filled by leisure travelers,” he added.
The authority has implemented changes to rectify the situation, including developing a five-year strategic plan and working on hiring a new CEO. As of early December, it was close to selecting an applicant. The return of Safari Club International’s biannual convention for three years beginning in 2019 is a positive start.
This year, Northern Nevada will see some upgrades and additions to the hospitality industry. Millions of dollars are being spent on improvements of local hotel-casino properties, Farahi said. Las Vegas-based Station Casinos plans to add a $50 to $70 million hotel-less gaming and entertainment facility near the Reno-Sparks Convention Center. Eldorado Resorts Inc. is carrying out $50 million worth of renovations to the Eldorado, Silver Legacy and Circus Circus properties in Reno.
Similarly, hundreds of millions are being invested in the region’s major ski resorts. One project moving forward is development of 94 acres at Squaw Valley, which will encompass a new hotel, resort, residential, retail, restaurants and bars, entertainment, a Mountain Adventure Camp and public and private recreational facilities.
“Two thousand seventeen is going to be putting the plans in place to implement the [RSCVA’s] five-year strategic plan and improving our products as far as offerings so we can aggressively go after bringing groups and conventions to our community,” Farahi said.
Southern Nevada is expected to set tourism records, indicated Rossi Ralenkotter, CEO, Las Vegas Convention and Visitors Authority (LVCVA), who described what’s anticipated for the industry as “bold, trendsetting and exciting.”
As of October’s end, the region boasted a nearly 90 percent occupancy rate, showed stronger increases in the average daily room rate and hosted the most visitors ever year to date, at 36.2 million, according to authority numbers. Single-handedly, the CONEXPO-CON/AGG, the international trade show for the construction industries, brings 130,000 people to Las Vegas every three years and it takes place this March.
New in 2017 in Vegas are the premier season of the National Hockey League’s Las Vegas team which will be Nevada’s first professional sports franchise, the possible addition of an NFL team, further resident acts like the Backstreet Boys, the opening of the Wynn Plaza shopping center on the Strip and the debut of restaurants such as Momofuku and Zuma at the Cosmopolitan.
Development of the Las Vegas Convention Center District, which will add 600,000 square feet of meeting space, is ongoing, as is the planning of a 65,000-seat stadium.
“The combination of those, the relatively strong tourism market in terms of volume of activity but, also, the fact that we appear to be making investments to sustain that over the next decade, is very encouraging,” Aguero said.
Continuing to impact tourism in Southern Nevada will be the strength of the national and global economies along with airline development, particularly international flights. A potential headwind, Aguero said, is decreasing numbers of international visitors due to a strong U.S. dollar and, consequently, weak international currencies.
“The global economy continues to slow,” Miller said. “Those events are drivers of our local economy because we rely very heavily on tourism.”
While gaming revenues in Clark and Washoe counties have come up from their recession lows, they have not reached pre-recession levels. Gaming revenue for Nevada as of October 2016 was about $928 million, which compares to $1 billion at the same time a decade earlier. The number is expected to increase in 2017 but not dramatically so, Miller said.
“It’s pretty volatile,” he added. “The trend has been upward but not at a very fast pace.”
Residential Real Estate
The state’s northern region is noteworthy as residential real estate will continue to be hot, Bonnenfant said. Apartment rents are at a record high, and there’s renewed interest in condominiums and townhomes. It’s expected that some pent up demand should translate into new housing, particularly in the commuter markets, Fernley and Dayton for example. Already, tentative map applications are being filed for new homes in Dayton, where such a project hasn’t been built since before the economic downturn. Completion of the USA Parkway should boost housing demand in and around that area, too.
However, concern exists for a potential market bubble, Aguero said, because home prices are starting to exceed affordability. The median price of sold homes in Reno-Sparks was $306,000 as of October 2016, according to the Reno/Sparks Association of Realtors. That compares to $233,250 in the Las Vegas Valley, Greater Las Vegas Association of Realtors data show.
Statewide, multi-family housing units will continue to be built, with a number of finished projects coming online, Aguero said.
As expected, in mid-December, the Federal Reserve increased the federal funds rate by a quarter percentage point to between 0.50 percent and 0.75 percent. The Federal Reserve also expects to raise the rates in 2017 by another 0.75 percentage point, possibly in three quarter-point moves. This will have an effect on homeowners and home buyers. People having to pay more on their existing mortgages, Aguero said, could cut into their household’s disposable income. Also, added interest on mortgages for new home purchases would decrease their affordability for non-cash buyers, Bonnenfant said, exacerbating Northern Nevada’s existing high price problem.
“The interest rate growing is going to throw a wrench into the housing market for sure,” he added.
Commercial Real Estate
Commercial real estate in Northern Nevada will do well except for the retail sector, Bonnenfant said.
Industrial will continue “going gangbusters,” he added, with the amount of vacant land and industrially zoned property that exists. For example, the Boomtown Industrial project, an 855,000-square-foot industrial warehouse building in West Reno, will be completed.
With high vacancy rates in office and retail, filling the existing inventory will continue. No new construction in retail is expected until much better absorption happens. New Class A office, however, which is in short supply, will be built this year.
The Southern Nevada commercial real estate market should see continued improvement. Industrial is expected to continue leading the way, primarily due to retailers moving to an e-commerce model, for which distribution facilities are critical, and expansion activity on the Strip, said Mike Shohet. Serving as president for NAIOP Nevada, the commercial real estate development association for Southern Nevada, Shohet is also vice president, construction, project and development services for JLL and works in the Las Vegas office of the corporate real estate services firm.
Retail should see continuation of the resurgence of single-tenant buildings like fast food pads along with service-oriented brands such as convenient stores. More experiential retail, places where consumers can do more than make purchases, also is expected.
In the office sector, despite high vacancy rates in less desirable locations, activity is expected to continue, driven by demand for better products in more attractive locations. Indicators point to additional user-driven, build-to-suit projects.
On the state level, it appears interest rates will again come into play. Higher rates likely will make it more difficult for developers to obtain construction loans because, in many cases, they already were struggling to make projects pencil out, Shohet said.
Developers with 10-year commercial loans that mature this year may find themselves pinched if they can’t afford to refinance the associated project, he added. How that shakes out remains to be seen.
This industry should continue to fare well, Aguero said. The main factor that could alter the status quo is interest rates. Rate hikes, particularly if they continue throughout the year, would be a further advantage for financial institutions.
Nevada will see a continuation of increased cash available for investment-related activity here, Aguero said. Banks will be eager to loan money at the higher interest rates and, therefore, will offer more such products. Obviously, for business and consumer clients, higher interest rates are less attractive.
Also, any modifications to or rollbacks of the Sarbanes-Oxley Act (SOX) and Dodd-Frank Wall Street Reform and Consumer Protection Act regulations could significantly affect banking in Nevada. SOX, passed in 2002, was enacted to protect investors from the possibility of fraudulent accounting activities by corporations. Dodd-Frank was enacted in 2010 as a result of the recession and added regulations to the banking industry in an effort to promote transparency and protect consumers. As of early December, how the two acts could change is a question mark, leaving the experts unable to meaningfully predict their potential impact.
However, Bonnenfant said laxer rules could make it easier for larger companies to obtain financing, but the procuring of small business and micro loans would remain the same.
What to Watch
As we move through 2017, several factors can be monitored for upward or downward movement, which will help shed light on the economy’s health.
For Nevada as a whole, the single most important one, Aguero said, is personal income. Another is investment, both public in infrastructure like roads, water and the like, but also private, in buildings and other projects. Employment growth is critical. The goal is stability and decreasing joblessness over the long term.
Key drivers of Southern Nevada’s economy, Miller said, will be visitor counts and construction activity.
In Northern Nevada, growth in the professional and business services sector will dictate the economy, Bonnenfant said.
Further, potential restructuring of or repeal of the Affordable Care Act could impact the local economy in two ways. It could translate into less of a need for workers, and the healthcare industry employs the most Northern Nevadans. Additionally, depending on how much people will have to pay for health insurance and care, it could decrease or increase their disposable household income.
The U.S. Parkway completion and resulting effects in Fernley, Carson City and Dayton, could shift Northern Nevada’s economic dynamic from being Reno-Sparks centric to having a more even distribution across various cities.
“Into 2017, we’re looking for a mixed bag relative to the economy as a whole,” said Aguero, who further described it as being “multi-faceted” and “pensive.”
As any expert will tell you, predicting the economic forecast for any state is, at best, incredibly difficult. Add in Nevada’s historical dependence on the tourism industry and the task is nearly impossible. However, there are several bright spots in the Battle Born state’s future that indicate 2017 could be a boon for business.