Real estate prices falling
Real estate prices in the USA and in many other western markets are currently stagnating or falling. This is due in no small part to recent rises in interest rates. However, there are several factors influencing commercial property values across the country.
It’s the economy
Macroeconomic factors are at play in the US real-estate market with national and international geopolitical issues. In addition, market volatility, high inflation, and interest rate increases in the US and globally mean it is hard to predict what will happen next. So let’s take a look a little deeper at these factors.
- Geopolitical issues: The primary issue having global economic impacts is the war in Ukraine and the sanctions that have been placed on Russia. The repercussions from the conflict and sanctions are most apparent in European countries, but they have not left the USA untouched either. The war has led to supply chain issues which have driven up food, shelter, and energy prices.
- Record inflation: The rapidly rising prices mean the US is now experiencing record-high inflation. In October, the US inflation rate was 7.75% – the highest it has been since the 1980s. As a result, rents are sky-high, and many companies are now concerned their entry-level employees cannot afford housing near their place of work.
- Rising interest rates: In an attempt to try and control inflation, interest rates have been pushed to their highest since 2008, and further rises are anticipated in 2023. This could negatively affect commercial real estate owners, including companies with mortgages on land-based casinos.
Profit and loss
With market conditions as they are, one could reasonably expect to see a fall in real-estate value. In theory, this could be good news for the gambling industry. If commercial property prices are lower, land-based casino buildings should be cheaper. Unfortunately, that only works if you are a cash buyer. Whether commercial or private property buyer, it is the cost of the borrowing which affects cash flow rather than asset value.
Competition for casinos
Truth be told, the viability of brick-and-mortar casinos has been affected by more than one factor. There can be no denying that rising rents or mortgages do not help with operating costs and profitability. However, you only have to be looking for a casino online to see that internet competition is a key driver. Currently, 14 online operators in Michigan compete with land-based casinos for a share of the gambling purse.
A move to an online world
Like so many industries, the world of gambling is having to adapt to changing circumstances. The Covid-19 pandemic drew into sharp relief that businesses could thrive in an online environment and those which could not. Online gambling was one of the success stories of that period. Many people who were stuck at home tried online casinos and sports books for the first time. It is estimated that large numbers of online bettors have never, and would never have, stepped foot inside a brick-and-mortar casino.
It is not a question of either or
However, the convenience of iGaming on a mobile device or desktop computer means many new customers are playing casino games in their spare time. While the land-based casinos were forced to close, virtual ones thrived. As the world reopened, many people wanted to socialize again, and footfall has been good at many casinos across the land. This has not been to the detriment of their online variants, which have continued to grow.
Last year land-based casinos in the US reported a phoenix-like comeback. Receipts were up by over 21% on pre-Covid figures. Land-based slots are the firm favorite in this. The gross gambling revenue (GGR) for physical slots was $32.5 billion, up 10% from pre-pandemic figures. Table games also increased in the period but by a more modest 1% on 2019’s take.
Casinos are an attractive proposition
It appears that casinos are still an attractive proposition for commercial property owners. This is particularly true when considering mixed-use developments. Casinos are a big draw for potential tenants. There are many ways to make money from the games’ tables. Many entrepreneurs have realized that controlling the game is better than merely being a player.
Changing attitudes to gambling in the US
In general, the US has radically changed its relationship with gambling. Up until 1978, the only place revellers could enjoy casino games was with an expensive trip to Las Vegas. Then Atlantic City got in on the act and opened the first legal venue outside of Nevada. Other states slowly followed suit, and now gambling in some form or other is legal in all but two US states. What is legal varies from state to state, but there are land-based venues either run by commercial or tribal operators the length and breadth of the country.
A possible recession is still on the horizon
While property prices rise and fall and rise again, gambling seems to be on an upward trajectory in the USA. Online and metaverse gambling might be the future, but land-based casinos are experiencing a resurgence. The big test for the sector will not be property prices but the possibility of recession, leaving less money for leisure pursuits.