In recent years Mongolia’s commercial real estate segment has seen rising rents and expanding levels of international participation, in line with steadily increasing per-capita incomes. In Ulaanbaatar a handful of new grade-A mixed-use buildings have been completed, including, perhaps most notably, Central Tower, which opened for business in 2010, and Blue Sky Tower, completed in 2011. Other than these two buildings, as of mid-2013 the great majority of the retail space on offer in the city was of a grade-B or lower standard, though additional grade-A projects are expected to come on-line in the next three to four years.

Across The Board

The bulk of Mongolia’s prime retail space is centred on Peace Avenue, the crowded east-west artery that runs through the centre of Ulaanbaatar. International-standard space is a relatively recent phenomenon in the city, and indeed only a couple of buildings currently offer grade-A space, namely the aforementioned Central Tower and Blue Sky Tower, both of which sit adjacent to Sukhbaatar Square, on Peace Avenue. Since late 2010 demand pressure from international retailers has strained the country’s limited grade-A retail capacity, pushing up rents and encouraging developers to begin work on a number of new projects. Since 2010 a handful of foreign luxury brands, including Burberry, Dior, Emporio Armani, Louis Vuitton, Vertu and Mercedes Benz, have reported high sales figures, despite a population of just 3m in total and a GDP per capita of $3673 in 2012, according to World Bank data. “One to two thousand people is all you need,” Yves Carcelle, former CEO of Louis Vuitton, told media in 2011. “You can’t judge by average income – average doesn’t mean anything. The question is, do you have a few thousand people who can afford luxury?”

Grade-B space has also seen considerable demand pressure, as local and, increasingly, mass-market international retailers aim to tap into Mongolia’s burgeoning middle class. Most of the country’s grade-B space is organised into individual storefronts or large department stores, such as the State Department Store.

New Supply

According to World Bank data, the wholesale/retail sector grew 3.1% in the first half of 2013, and accounted for around 11% of GDP as of the end of the second quarter of the year. Total grade-A and grade-B supply was at around 200,000 sq metres as of the end of 2012, according to estimates from M.A.D.

Investment Solutions, a property research and consultancy firm based in Ulaanbaatar, though this figures is expected to rise exponentially for at least the next four years. By 2017 Ulaanbaatar could potentially be home to more than 450,000 sq metres of graded retail space, according to M.A.D. projections. A majority of this new supply will be in the grade-A segment. High-end retail space is a central component of a number of major mixed-use projects that have opened in the past year or are expected to be delivered in the near future. MCS Properties Holding, a subsidiary of the MCS Group, one of Mongolia’s largest firms, is developing a new tower in conjunction with Hong-Kong-based Shangri-La Hotels and Resorts. Located just next door to Central Tower, another joint MCS and Shangri-La project, the tower is expected to have space for around 15 luxury retailers. MAK Tower, which is being developed by the local MAK Group in conjunction with the Japanese-South Korean Lotte Group, will also feature a considerable amount of grade-A retail space. Other developments expected to comprise major retail components include the Misheel Mega Mall project, Chinggis Khan Hotel, the International Finance Centre, MCS’s Vivacity project and the Olympic Residence building.

According to most local players, demand for both grade-A and grade-B space is widely expected to remain strong going forward. That said, the massive amount of new space expected to open in the country in the coming years has led to concerns about a supply glut, particularly at the upper end of the market.

Given the number of new grade-A projects under way, most local developers appear to be broadly optimistic about the Mongolian population’s long-term appetite for international-standard retail experiences.