The next several years are likely to see the Mongolian hotel market become considerably more competitive and dynamic as major international chains open in the country and existing institutions look to strengthen their positions in the industry.

Investments in both planned and existing hotels have come after several years of steady improvement in quality, which has been driven by overall rising demand from business tourists in particular.

Nonetheless, an issue that has been regularly discussed by tourism industry leaders is a shortage of middle- and high-end hotel rooms in Mongolia. Ulaanbaatar has a range of good hotels, but rates tend to be quite high and do not always reflect quality, indicating scope for considerably more competition. Outside Mongolia’s capital, international-standard hotels can be more difficult to find, and there is very little true luxury accommodation.

TOP SPOTS: This situation is now beginning to change. There are currently only two internationally recognised chains with hotels in Ulaanbaatar, the 102-room Kempinski Khan Palace and the 128-room Ramada, which opened in summer 2011. The latter is owned by the local Max Group conglomerate, but its rooms and facilities are operated by Ramada. Kempinski took over management of the Khan Palace Hotel in 2007 from its Mongolian owners. The Kempinski has an established reputation for hosting official visits and diplomatic missions, including that of German Chancellor Angela Merkel in 2011. Its disadvantage is that it lies nearly 3 km from the heart of the city and the major office buildings and embassies. Given Ulaanbaatar’s transport problems and security concerns, even this short distance can be an issue. The Ramada is somewhat more central.

There are several independent hotels owned by local entrepreneurs that are currently operating in Mongolia, including: the 152-room, 54-suite Chinggis (Genghis) Khaan, which is part of the Summit Hotels network of independent hotels; the Corporate Hotel; the 215-room Bayangol Hotel, the country’s oldest; and the Ulaanbaatar Hotel.

CORE MARKETS: With good occupancy rates year-round at top hotels due to a regular throughput of business travellers, and rooms that are extremely scarce at the peak of high season, rates are relatively high, at around $150 for a typical room.

Sven Fritzsche, the former general manager of the Kempinski, points out that while business visitors often stay in Ulaanbaatar for several days or even weeks, leisure tourists tend to pass through the city quickly en route to the countryside and before flying out. Thus business travellers are the core market for most top hotels. Many leisure tourists fall into one of two groups: either package groups, who tend to be quite well-heeled, or backpackers on a strict budget. This may explain why there has not been a great deal of development of mid-market hotels.

INTERNATIONAL ENTRANTS: The next few years are set to see a number of top international chains from around the world set up operations in Ulaanbaatar. Hilton, Radisson Blue, Sheraton and Best Western are just some of the brands said to be considering entering the Mongolian market. J. Batbold, the owner and president of Selena Travel Group, told OBG that the country’s tourism industry has been sceptical about announcements of hotel developments in the past, as proposed investments and developments have not always materialised.

But a number of recent announcements, and the opening of the Ramada, as well as the clear signs of a quality shortage in the industry, indicate that a genuine capacity expansion is under way. In most markets, the four-star Ramada would not be viewed as a direct competitor for five-star establishments, particularly the Kempinski, given the latter’s reputation for hosting official events. However, such is the current shortage of quality hotel rooms in Mongolia that the Ramada has brought an additional element of competition and dynamism to the market.

Shangri-La announced in July 2011 that its new hotel in Ulaanbaatar would be significantly bigger than originally proposed. The Hong Kong-based firm stated that the 280-room hotel, developed in partnership with powerful Mongolian conglomerate MCS Group, would have 22 rather than 17 floors. The first phase of the building, the hotel tower itself, is currently expected to open in the third quarter of 2013, while the second, an apartment tower with conference facilities, is due to be launched sometime in late 2014. The city-centre hotel will have a range of recreation and function facilities. The Shangri-La is being billed by some as “Mongolia’s first true five-star hotel”. While this is a claim shared by some of the existing institutions, Fritzsche expects the Shangri-La to aim for the top of the market and establish itself as Mongolia’s premier hotel, with rates as high as $200-$300 to match.

In October 2011, the international press reported that US firm Hyatt International would be opening a 259-room hotel in central Ulaanbaatar in 2014. It is expected to include 43 suites, 22 serviced apartments and approximately 23,166 sq metres of meeting and event space. Between them, the Ramada, Shangri-La and Hyatt should substantially increase Mongolia’s capacity for MICE tourism.

STANDARDS: The expansion of four- and five-star hotel space in Ulaanbaatar is being widely welcomed across the tourism sector. The competition is expected to drive up standards among existing local hotels, which will serve to enhance the visitor experience of Mongolia, as well as helping bring down prices at the older establishments that do not have the facilities to match the newcomers. Fritzsche argues that if all the planned hotels are realised, there may be considerable over-capacity in the low season in four to five years, intensifying competition further. “The old hotels will need to catch up – they will have a struggle on their hands,” he told OBG. “Prices are also likely to get more competitive.”

As is the case elsewhere in the tourism sector, finding trained and able staff continues to be a challenge. Fritzsche and others note a frustrating lack of consistency among workers. The perception is that the situation is changing as a younger generation comes onto the job market. The new hotels will intensify competition for human resources.

GOING REGIONAL: The high-end hotels and resorts are also emerging outside the capital, albeit more slowly. The 52-room Terelj Hotel and Spa opened in 2008, while Batbold rates the Three Camel Lodge, a luxury ger camp in the heart of the Gobi Desert, as one of the best provincial hotels. The challenge tourist-oriented provincial hotels face is that their market is even more seasonal than that of Ulaanbaatar, where there is always a regular throughput of business and transit visitors. With the possible exceptions of Terelj and the few major regional commercial and mining centres, hotels outside Ulaanbaatar will see much lower traffic in mid-winter. Indeed, most ger camps will close around October.

Unsurprisingly, development is focusing on top tourist areas. Hyatt is expected to open a hotel in Terelj in 2015, not far from the Terelj Hotel. Reports suggest that it will have 131 rooms, including 19 suites, as well as a camp with 30 gers, and 8988 sq metres of meeting and event space.

The Ministry of Nature, Environment and Tourism’s plans for the development of Kharkhorin call for international-standard hotels to be established in the town as part of a tourist camp. Other key tourist regions, particularly Khovsgol, the Gobi and the Altai Mountains are also likely to attract increasing attention from investors looking to set up quality hotels and luxury ger camps as rising tourist traffic permits.

According to Helge Reitz, the managing director of Ulaanbaatar-based Nomads Tours, “There have been improvements made over the years, and ger camps in particular have risen in overall quality. There are a lot of new hotels and camps coming up, but there is still a lot to do, as the demand from clients is currently rising faster than supply.”

MOVING FORWARD: The last few years have seen steady improvements in the quality and range of hotels and other tourist accommodation in Mongolia. Now it seems that the market is stepping up a gear, with a number of brands likely to open. The effect should be positive, particularly from the point of view of the consumer. Competition would encourage incumbents to invest in facilities and staff or lower prices that do not always match standards and service. The range of accommodation options is also set to broaden further, from new top-end luxury hotels to mid-range chains with competitive rates for business and leisure travellers.

The countryside is the heart of the leisure tourism sector and is also seeing investment in hotels and ger camps, the best of which are designed and run to be harmonious with the environment and local culture. If Mongolia is to capitalise on its tremendous potential, this process should intensify going forward.