Lodging options for incoming visitors to Mongolia have increased dramatically over the past decade. While current, comprehensive data on the number and type of hotels is haphazard at best, according to recent estimates, Mongolia was home to at least 20 four- and fivestar properties as of the end of 2013, in addition to an equal number of two- and three-star hotels, although the capital, Ulaanbaatar, could use more mid-range accommodation, said J. Soyolmaa, director of DMD Mongolie. “There is a lack of high-quality, affordable three-star hotel rooms in Ulaanbaatar. This is a real problem, as many European travellers coming to Mongolia expect accommodations in this category as opposed to solely luxury establishments.”
New Hotel Projects
Figures are expected to rise considerably through 2016, particularly for high-end accommodation. A variety of hotel projects are currently under construction or in the development stages. These include the Shangri-La Hotel, which is expected to be completed in 2015; a new Hilton property, which is forecast to open in mid-2015; and a Mövenpick project, which was announced in 2013 and is expected to be completed by 2018, among others.
Like the majority of the existing and upcoming hotel projects, these three properties will be developed in the capital city, Ulaanbaatar. “Many new hotels are scheduled to open in the next few years,” said B. Indraa, the director of the governing board at the Mongolia National Tourism Organisation (MNTO), an industry association. “The question is whether the airlift capacity matches the accommodation growth, and whether there will be real demand for this new supply of rooms, especially for the luxury ones.”
Market Dynamics
Indeed, the lodging segment currently faces a handful of challenges. Most of the ongoing hotel projects were launched in 2011 and 2012, and were rolled out in large part as a response to rapidly rising demand spurred by Mongolia’s mining boom during that period. Since then, however, economic growth has stalled somewhat. According to the Asian Development Bank, economic growth in the country slowed to 5.3% in the first half of 2014, down 8.7% year-on-year from the last quarter of 2013. This decline has contributed to a slight fall in the number of international arrivals in recent years, from 475,000 incoming tourists in 2012 to around 417,000 international arrivals the following year and 400,000 in 2014. A considerable percentage of this contraction can be attributed to a decline in economic activity and a concomitant drop-off in business travellers. “The big story here is that the government is working to diversify away from mining,” U. Batbayar, the managing director of the Battour Travel Agency and governing board member of the MNTO, told OBG. “This is widely expected to have a positive impact on all facets of the economy, including tourism.”
Demand Drivers
While reliable, up-to-date hotel occupancy data is not available for Mongolia, based on anecdotal evidence many hotels have seen a slight drop-off in revenues in recent years. In general, business across the country’s various hotel segments is highly seasonal, with many properties reporting high occupancy rates – 90% to 100% at the top-end facilities – during warm summer months, and low rates – generally below 60% – during the off-season. This is in line with Mongolia’s tourism industry as a whole, which pulls in the majority of revenues during the warm high season from June to September. In recent years a handful of hotels have partnered up with tour operators and other industry players to build up winter tourism offerings, with the long-term goal of boosting revenues during the off-season. A number of major events that take place during the winter months, such as the Lake Khö vsgöl Ice Festival, the Golden Eagle Festival and the Thousand Camels Festival have all been launched or have expanded considerably in recent years (see analysis), and are expected to play a major role in boosting off-season demand. In an effort to attract winter visitors, many hotels lower their prices substantially, 30% to 50%, according to data from M.A.D. Investment Solutions, an Ulaanbaatar-based property research firm.
At the same time, most hotels will likely continue to earn the majority of their revenues during the short warm season for the foreseeable future. With this in mind, traditional growth drivers include growing airline connections, with new regular flights between Ulaanbaatar and other major cities (see overview), and, more generally, Mongolia’s rising reputation as a major adventure tourism destination. The country’s turn as Official Partner Country of the Internationale Tourismus-Börse (ITB) Berlin 2015, the world’s largest tourism and travel trade fair, bodes well for future expansion. Other potential growth areas include the meetings, incentives, conventions and exhibitions (MICE) segment, and, longer term, the low- and mid-end market, both of which remain relatively underserved at the moment. “The industry needs more mid-range hotels and other lower-end properties,” said Indraa. “There is little supply here right now, and rapidly rising demand.”
Existing Properties
The five-star Kempinski Khan Palace, developed by the local Tavan Bogd Group, opened its doors for business in 2005 as the only internationally branded hotel in the country. The Kempinski is located in the modern Bayanzurkh area, 1.5 km east of Sukhbaatar Square on Peace Avenue. In 2012, the most recent year for which reliable data was available at time of publication, the Kempinski posted an annual occupancy rate of nearly 70%, making it one of the most popular properties in the country. Like most other three-, four- and five-star properties, the Kempinski saw a rapid decline in occupancy rates after the 2008-09 international economic crisis, but has posted strong growth since the mining boom of 2010-11.
In 2011, in large part due to the influx of mining-related business travellers, a number of new high-end hospitality properties were announced, including hotels by international brands such as Sheraton, Best Western, Hyatt and Hilton, among others. Since then, however, projects have moved forward sporadically, due to volatility in the domestic economy. In 2011 the Ramada Ulaanbaatar Citycenter opened its doors for business as part of a mixed-use retail development. With 128 rooms, in 2012 the property reported occupancy rates of 50-60%. In 2012 the Blue Sky Hotel opened for business. With 200 rooms, as of mid-2014 this property was one of Mongolia’s largest high-end hotels. Other currently operating hotels in Ulaanbaatar include three Corporate Hotels, one each in central Ulaanbaatar, the capitol’s up-and-coming Khan-Uul district and the suburban Nukht Valley area; and the four-star Urgoo Hotel, which was completed in 2010 in a renovated apartment block near Sukhbaatar Square.
In addition to formal properties, Mongolia is home to a variety of low-end hotels and guesthouses. According to data published by the National Statistical Office of Mongolia (NSOM), as of the end of 2012 there were more than 240 guesthouses in the country, down slightly from around 270 in 2008, for example. A majority of these properties cater primarily to small-business operators and traders, many of whom travel to Ulaanbaatar over land from China and, to a lesser extent, Russia.
New Developments
The Shangri-La Hotel, launched in 2011, is a joint venture by the local MCS Group and the Shangri-La Hotels and Resorts group. The 290-room property was initially scheduled to be ready for reservations in December 2014, but this was delayed due to a fire at the end of September 2014 and it is expected to open in June 2015. Upon completion the building will house the hotel, as well as space for retail, serviced apartments, office and events, along with a significant amount of underground parking.
A five-star Hilton Hotel is also under way. A joint venture between the US-based Hilton Hotels and Resorts and Star Estates, a local firm, the project includes a 280-room, 12-storey facility. In late 2013 Star Estates appointed UK-based construction and engineering firm Mott MacDonald to carry out building services on the project, which is expected to include retail and event components and be completed by mid-2015. “This is a very challenging project due to the climate of Ulaanbaatar, which suffers extremely harsh winters and temperatures as low as -40°C at night,” Paul Jenkins, a project director at Mott MacDonald, said in a press release.
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