The Convention Center Bubble Will Soon Pop
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The Las Vegas Strip continues to be a ghost town. The entertainment capital of the world is now a shadow of itself, boarded up by order of the state’s governor. Also sitting vacant is all of the city’s convention and meeting space, totaling 11.5 million square feet.
Las Vegas has engaged in a space race with other cities for years by building acres' worth of floor space to attract millions of lanyard-wearing conventioneers. “Contemporary convention center building is regularly described by local officials and the news media as an economic development boon,” Heywood T. Sanders wrote in Convention Center Follies, “one certain to generate new visitor spending with the potential to revitalize a downtown and the larger community.”
The Las Vegas Business Press reported last year, “Las Vegas competes with Orlando, Chicago, Los Angeles, Anaheim, Seattle, Atlanta, San Francisco, Houston, and New York for conventions in an industry that’s growing at 6 to 7 percent a year, which is faster than the economy as a whole, [Las Vegas Convention and Visitors Authority president Steve] Hill said.”
Las Vegas convention attendance first topped 6 million in the boom year of 2005. Since then, the number of yearly convention visitors has bounced between just short of 4.5 million in 2009 and again in 2010 to last year’s peak of over 6.6 million conventioneers.
With the common belief being “build it and they will come,” the Las Vegas Convention and Visitors Authority (LVCVA) is spending $1.47 billion on its convention center project, adding 1.4 million square feet to its facility, including six hundred thousand square feet of new leasable exhibit space.
The LVCVA is not alone: a total of 3.5 million square feet is under construction in Las Vegas that will add 30 percent to the city’s convention space inventory. Last year, LVCVA president Hill said, “It’s pretty remarkable what’s going on in Las Vegas right now, but it’s in response to demand.”
If adding 3.5 million square feet of space sounds aggressive, it is. Only five cities in America have 3.5 million square feet of convention space at the moment.
What a difference a year makes. But, construction being an essential business in Nevada, the building continues.
Included in the convention center expansion is the construction of a people mover forty feet underground, which is being dug by Elon Musk’s Boring Company for a price somewhere around $50 million. An initial loop of express tunnels will carry passengers in autonomous high-speed electric vehicles from one end of the convention center to the other, which will span two hundred acres upon completion. The company finished the first of two tunnels in February. What would have been an exhausting fifty-minute walk from one end of the convention center to the other will be a sixty-second ride.
Exhibit City News quoted Mr. Hill gushing last year,
This is an incredibly important and exciting time, not just for the LVCVA but for the entire destination,” says Steve Hill, LVCVA CEO. “We’re delighted to join a boom in development that’s on a scale that we haven’t seen in more than a decade. We’ve been the No. 1 trade show destination in North America for 24 consecutive years, but we must continue to be innovative and upgrade our offerings if we’re going to maintain that top spot. This expansion and renovation is our commitment to our clients and our community to foster growth and continue to deliver the excellent service and amenities that have made Las Vegas the world’s premier destination.
Mr. Hwang lives in Las Vegas and writes about the city and gaming. In his Motley Fool article, Hwang correctly points out, “Las Vegas sees 42 million of the most geographically diverse visitors on the planet, all concentrated onto a 4-mile Strip; the Strip is a Petri dish for a virus, and little different from a cruise ship.”
Speculating on a Vegas reopening, Hwang used the Macao closing and subsequent opening as a comparison. “In February, Macau reopened after closing for two weeks due to coronavirus. In March, Macau effectively operated at 20% of pre-coronavirus levels, showing an 80% drop in year-over-year gaming revenues.”
He points out that Macau benefits from thousands of daytrippers who are a short boat ride away in Hong Kong. Las Vegas lacks this demand source.
Perhaps, Hwang’s most important observation is, “visitation to Las Vegas did in fact hit the wall, peaking at 42.9 million visitors in 2016, and otherwise showing a visitor count of 42 million for the last five years in a row, despite a booming U.S. economy.”
Skift Research saw an evolution coming in conventions back in 2014:
Savvy veterans and a batch of hungry newcomers are leading the way outside of the “big beige box” convention center to a future where events cease to exist in a singular time and place. Advances in event technology and increasing tech adoption rates are driving new levels of brand engagement and participant reach globally, creating new business relationships on a worldwide stage.
Murray Rothbard wrote in America’s Great Depression,
The “boom,” then, is actually a period of wasteful misinvestment. It is the time when errors are made, due to bank credit’s tampering with the free market….The “depression” is actually the process by which the economy adjusts to the wastes and errors of the boom, and reestablishes efficient service of consumer desires.
The COVID-19 depression will expose the boom in convention space for what it is, a massive malinvestment, and, in the case of the LVCVA, government waste—soon to be liquidated.