CityCenter's 5,000 Rooms Likely to Hurt Las Vegas Strip

(MoneyWatch)  We all heard about the recent fanfare about the openging of Las Vegas's latest development CityCenter, an $8.5 billion venture between MGM Mirage and Dubai World. But what does an extra 5,000 or so rooms, ranging from midrange to luxury, mean for a city whose lifeblood is tourism?

So far, many industry analysts say that the higher-end rooms will force other midrange and luxury properties on the Strip to drop prices to compete with the ultra-new Mandarin Oriental Las Vegas, Vdara, Aria or Harmon hotels. "The economy is going to continue to be weak next year and so, even though visitation to Las Vegas will be up modestly, with all the new rooms there will continue to be pressure on room rates on the Strip," Dennis Forst, a gaming stock analyst with KeyBanc Capital Markets, told the Las Vegas Sun.

In the last decade Las Vegas reinvented itself as a place to play -- not just strip clubs and slots for the hoi polloi, but the high-stakes poker, exclusive parties and amenities for the rich. Why else have dance clubs with $1,000 bottles of Grey Goose or $10,000 a night suites? But now, in a full-blown recession, the rich and the not-so-rich aren't as eager to part with their cash.

For instance, on Monday, Dec. 28, Mandarin Oriental's prices start at $345 a night, Vdara's prices start at $199 and Aria wants $299. None of those prices sound like they're appealing to the budget-oriented crowd that are now visiting Las Vegas. (Earlier this year, the American Society of Travel Agents voted Las Vegas as their No. 1 budget destination.)

In essence, CityCenter has caused a ripple effect that will be felt all the way down to Las Vegas's budget properties. Luxury rates will likely drop to midrange prices, soon midrange hotels will offer budget prices, but budget hotels -- already at the lowest they can go -- will be unable to drop the price further. And what self-respecting tourist is going to settle for budget accommodations when they can get better amenities at the same price? And the chips begin to fall.