Casino operators have over the years up the stakes in Asia’s vibrant gaming market. In fact, it seems they have played all the right cards in the deck up until this point. 2018 was a strong year for casinos across Asia. From Macau to Cambodia, operators boasted strong gross gaming revenues (GGR) as the market recovered from its slump.
Whilst VIP gaming revenues have continued to witness a significant drop especially in Macau, mass market play continues to gain ground, with 2018 gross gaming revenue increasing by 14%, recording the second consecutive year of gain as demand from the Mainland Chinese continued to rebound after a prolonged decline.
The Philippines also garnered a strong 23% increase in GGR in 2018, most of which were generated by the four integrated resorts in Manila’s Entertainment City.
Gaming revenues in Vietnam are likely to have grown as well, albeit at a slower pace. It appears that the destination continues to suffer from poorly located properties, visa restrictions, in addition to a very opaque and fragmented market. We note that the first casino to allow locals opened in 2019 for what is in effect a trail period. Could this potentially pave the way for other casinos to be allowed locals to gamble? In our opinion, in any event, it is debatable how much additional GGR this could generate given the restrictions and small target market or would it simply cannibalise demand from existing border casinos?
This, combined with slowing growth in demand, has meant that investors are no longer witnessing the eye-watering returns as with previous investments and must be more discerning.
By our estimation, the size of the Asian gaming market, which remains directly correlated with GDP growth in Asian source markets (0.91 correlation factor over last five years), is likely to slow in the short to medium term. We estimate that after a period when there was significant latent demand for gaming in the region, supply has now caught up, and the sector is relatively mature. As such, any new supply will have to be competitive and offer a unique product that can capture demand from other established destinations in the short to medium term.
Our estimate of total potential GGR for Asia in 2019 is circa US$91.7 billion, with this mostly driven by the traditional mature destinations of Macau and Singapore. Going forward, with the recent announcement of the integrated resort expansion in Singapore, and the impending concession review in Macau, this is likely to increase the competitive market in the medium to long term, with these established markets potentially increasing market share. This poses an interesting dilemma for properties in Japan in the future.
Given any IR development in Japan will only likely evolve beyond 2023, with the government, quite rightly, signalling a cautious approach in the likely number of licences (circa three is expected) to be granted in the first round, we believe Japan’s IRs have the ability to be truly iconic and unique, largely tapping into the north Asia and domestic markets, with a potential market share certainly larger than Singapore’s.
As such, we anticipate that the total potential GGR for Japan in 2023 to be circa US$17 billion, taking into account an anticipated ‘novelty’ effect in the first year of operation. This could fall to US$12 billion in year two, stabilising around this figure. We note that this represents total potential GGR. Should only say three licences be granted, depending on location, the fair share of each metropolitan property could therefore be circa US$4.5 billion to US$6.0 billion per annum, stabilised. We would expect, operators in so-called tier 2 locations to generate significantly less in GGR per annum.
The recent announcement of the expansion of the IRs in Singapore, which could potentially coincide with Japan’s first openings, together with NagaWord’s third complex in Phnom Penh, and Laos’ impending review of its legislation, suggest the gaming market is set for interesting times ahead, especially given a potential slowdown in the growth of gaming revenue.
Contact Colliers’ Valuation and Advisory Serivces team for real estate consultancy services in the tourism and hospitality sectors.
Is growth on the cards for ASEAN markets?
The big winner of the continued VIP gambling fallout from the mature destinations appears to be mainly those in emerging markets, with Cambodia largely benefitting from the fall out in Macau. NagaCorp, Cambodia’s largest casino in Phnom Penh, witnessed a whopping 54% year-on-year increase in GGR in 2018, with the recently opened Naga 2 contributing to this result.The Philippines also garnered a strong 23% increase in GGR in 2018, most of which were generated by the four integrated resorts in Manila’s Entertainment City.
Gaming revenues in Vietnam are likely to have grown as well, albeit at a slower pace. It appears that the destination continues to suffer from poorly located properties, visa restrictions, in addition to a very opaque and fragmented market. We note that the first casino to allow locals opened in 2019 for what is in effect a trail period. Could this potentially pave the way for other casinos to be allowed locals to gamble? In our opinion, in any event, it is debatable how much additional GGR this could generate given the restrictions and small target market or would it simply cannibalise demand from existing border casinos?
New norms in Asian gaming
Asian gaming has and continues to shift rapidly to new norms. Previous levels of frustrated and latent demand are being quickly absorbed as new supply enters the market, and as governments across Asia realise they are leaving money on the table (or giving it away in some cases) by not penetrating the gaming market, regulating and taxing it at the right levels.This, combined with slowing growth in demand, has meant that investors are no longer witnessing the eye-watering returns as with previous investments and must be more discerning.
By our estimation, the size of the Asian gaming market, which remains directly correlated with GDP growth in Asian source markets (0.91 correlation factor over last five years), is likely to slow in the short to medium term. We estimate that after a period when there was significant latent demand for gaming in the region, supply has now caught up, and the sector is relatively mature. As such, any new supply will have to be competitive and offer a unique product that can capture demand from other established destinations in the short to medium term.
Our estimate of total potential GGR for Asia in 2019 is circa US$91.7 billion, with this mostly driven by the traditional mature destinations of Macau and Singapore. Going forward, with the recent announcement of the integrated resort expansion in Singapore, and the impending concession review in Macau, this is likely to increase the competitive market in the medium to long term, with these established markets potentially increasing market share. This poses an interesting dilemma for properties in Japan in the future.
An increasingly crowded market
The announcement that Japan will be legalising gaming in 2016 did not have any impact at the operational level of existing properties, but it has impacted decision making in terms of capital outlay strategy with some operators putting off large scale investments in existing properties.Given any IR development in Japan will only likely evolve beyond 2023, with the government, quite rightly, signalling a cautious approach in the likely number of licences (circa three is expected) to be granted in the first round, we believe Japan’s IRs have the ability to be truly iconic and unique, largely tapping into the north Asia and domestic markets, with a potential market share certainly larger than Singapore’s.
As such, we anticipate that the total potential GGR for Japan in 2023 to be circa US$17 billion, taking into account an anticipated ‘novelty’ effect in the first year of operation. This could fall to US$12 billion in year two, stabilising around this figure. We note that this represents total potential GGR. Should only say three licences be granted, depending on location, the fair share of each metropolitan property could therefore be circa US$4.5 billion to US$6.0 billion per annum, stabilised. We would expect, operators in so-called tier 2 locations to generate significantly less in GGR per annum.
Unlocking tourism growth
Gaming is a key driver for international visitation in the region, and if done correctly can add value to local economies, whether it be from income tax contributions, or job creation, and the multiplier effect of investment and growth. As such, the feasibility and economic impact of new developments must be fully assessed especially as the market becomes more crowded and total potential GGR slows.The recent announcement of the expansion of the IRs in Singapore, which could potentially coincide with Japan’s first openings, together with NagaWord’s third complex in Phnom Penh, and Laos’ impending review of its legislation, suggest the gaming market is set for interesting times ahead, especially given a potential slowdown in the growth of gaming revenue.
Contact Colliers’ Valuation and Advisory Serivces team for real estate consultancy services in the tourism and hospitality sectors.