Mongolia, once a place whose very name conjured up images of isolation and deprivation has become one of the hottest new frontier market destinations for international and luxury brands in recent years, particularly those catering to higher income clients.
Over the past 28 years, Mongolia has been successfully transforming into a vibrant democracy from a centrally planned socialist economy, resulting higher level of GDP with vast agricultural and mineral resources. During its transition to a market economy, Mongolian GDP had bottomed out particularly in 1993, experiencing a painful “transformational recession” until 2000. The new economy began to recover slowly to positive rates of growth thereafter by 2001- 2010. GDP per capita doubled between 2005 and 2012.
This economic boom has made many Mongolians millionaires overnight and affluent locals have begun seeking new ways to enjoy and show off their wealth.
However, the economy was particularly slowed down by a fall in commodity prices and declining investment and private consumption during 2014 - 2016.
After this downturn, the Mongolian economy strongly recovered in 2017 and 2018H1. GDP growth rate increased from 1.2 percent in 2016 to 5.3 percent in 2017 and 6.3 percent in the first half of 2018, thanks to growing investment in the mining sector and higher coal prices and exports.
The changes of GDP growth in these years indicate that the country’s economy is strongly dependent on mineral commodities. Boosted by an incredible amount of minerals with an estimated value of 1.5 - 2 trillion USD with a relatively small population, the economy has became one of the hottest new frontier markets for international investors in various fields.
Mongolia’s rampant economic growth has had a significant effect on the purchasing power of households. Working and professional class wages have risen rapidly, lagging just slightly behind the overall economy once inflation is taken into account. The retail sector that has benefitted from the recent boom has become the hidden hero of Mongolia’s real estate market. Both local retailers and the handful of international brands rapidly started expanding and many luxury brands like Versace Collection and Burberry have opened shiny new outlet branches in the center of the capital city. This means that Mongolians have much more disposable income to spend than they did a few years ago. According to the Mongolian National Statistics Office (NSO), monthly average expenditure on all types of consumption per household has significantly increased between 2012 and 2017; on clothing alone it increased by over 500% between 2003 and 2011.
Mongolians are consuming a larger number of higher quality goods than ever before. The retail sector has expanded accordingly, rising from less than 14% of GDP in 2008 to 19% in 2011 even as GDP itself increased by nearly 36% during the same period.
Developers have tended to focus on high-end office and luxury residential complexes over the last few years and have neglected the needs of a growing consumer class. Rental prices in the retail sector have yet to catch up to the growth of sales. The per meter rental price in Ulaanbaatar’s prime retail locations is still significantly below that of comparable locations in other emerging Asia markets.
The size, growing urbanization, and economic development of Mongolia are drawing retailers. With its robust retail track record, relatively low costs and bright macro outlook, Mongolia looks set for unparalleled consumer and retail spending over the next decade. More than 100 international brands have opened up exclusive franchises or wholly owned outlets in Ulaanbaatar to date, the majority in the past eight years.
At the same time, there is still a need for brands targeted at mass market consumers to cater to the growing local appetite for conspicuous consumption, because many Mongolians go abroad for shopping and buying designer goods.
Although traditional retail still exists with Mongolian consumers doing their daily shopping in open markets and through informal channels, shopping habits continue to evolve. Preference for organised retail formats and global brands is growing, creating more opportunities for international players. Apparel and luxury retailers are also expanding. Youthful clothing brands such as Mango, Sisley and Adidas, who entered the market in recent years, are doing great because the Mongolian people are open to giving new brands and new products a try.
Retailers’ interest in any country depends on development of new high quality shopping centers corresponding to world standards. The Shangri-La complex was completed in 2016, giving international retailers an opportunity to set better terms of occupancy in the business district of Ulaanbaatar. The country has numerous large shopping malls in the city, namely Central Tower, Khunnu Mall, Naadam Center, and Naran Mall, among others. Convenience stores and mini-marts have started growing in Mongolia in recent years. Trendy food and beverage destinations targeting young customers (65 percent of the Mongolian population is aged 35 or under) have newly opened in the city, such as Tom N Toms Coffee, Coffee bean, Tous Les Jours, KFC, and Burger King.
Investment opportunities in retail segment across three primary themes:
LEAPFROGGING INTO THE DIGITAL ERA
Rapid expansion of smartphone market with 1.7 million users is recorded. AI based intellectual work of Mongolian youth is growing and the first fintech financial service company LendMN launched its initial IPO at the Mongolian Stock Exchange (MSE).
THE RISING URBAN MIDDLE CLASS
More and more households falling in the middle-income segment. According to the forecast the number of households in this segment to pick up to 34.1% in 2022, up from 12.7% in 2018.
Bank of Mongolia has launched a campaign called “Digital payments in a digital era” in order to promote the widespread adoption of digital currencies and payments. In many ways, the rise of retail in Mongolia appears to mirror the experience of other emerging markets, particularly the so-called “Asian Tiger” economies of the 1990s and 2000s. Mongolia’s demographics, climate, consumption patterns, and unique cultural heritage differentiate it from the rest of the emerging economy pack. Its strong retail track record, low costs and bright macro outlook will propel Mongolia for unparalleled consumer and retail spending over the next decade. Many international partnerships have significantly exceeded their owners’ expectations, as the appetite for luxury and mid range western brands within Ulaanbaatar has proved to be more substantial than companies’ projections thought possible.
Asia Pacific Investment Partners is the oldest, largest, and most reputable Mongolian real estate agent.
We are a real estate intermediary and advisory firm offering agency, representation, property, management, property valuations, interior design, furnishing and financial intermediation services.
Company website: www.apip.com
JLL's City Momentum Index reveals where in the world to find highest levels of socio-economic and commercial real estate dynamism.
Asia Pacific is home to 19 of the top 20 cities, highlighting the continuing shift of fast urban growth from the West to the East, according to the sixth City Momentum Index published by JLL. The absence of European and American cities demonstrates a marked East-West growth divide, reflecting Asia's continued rapid urbanization and economic growth, driven by globalization, innovation and demographic factors. Overall, Indian and Chinese cities dominate the rankings, accounting for three quarters of the top 20. Leading the pack are Indian cities Bengaluru and Hyderabad, followed by Vietnam's Hanoi in third place. The only non Asian city on the list is Nairobi, in sixth place, which is heavily influenced by significant amounts of infrastructure-focused investment from China.
Jeremy Kelly, Director of Global Research at JLL says: "Asia continues to show strong momentum, with cities that are successfully expanding their innovation economy punching above their weight in terms of attracting capital, companies and people. "It's clear that the tech sector is a key driver of both real estate and economic momentum–driven by large technology firms as well as dynamic start-ups in cities like Bengaluru, Hyderabad, Ho Chi Minh City and Shenzhen."
Although the global economic cycle is in its late stages, there are still many cities in the world where real estate and economic growth continue to be robust. But while strong growth brings opportunities for economic and social development, it also brings challenges that cities must address to ensure short-term growth transitions into long-term momentum. Investing in infrastructure and greater transparency is essential to facilitate this transition.
Kelly adds: "These cities need to address the environmental and social impacts of rapid growth such as social inequality, congestion and environmental degradation. The provision of smart, efficient and productive real estate and increased transparency are key factors in driving long-term, sustainable growth."
Investment in transformative real estate drives growth Thoughtful and innovative development–such as regeneration projects with a long-term vision that nurture new businesses and improve lives–is essential, as are largescale infrastructure projects that help combat problems around congestion and improve accessibility, according to Kelly. Manila (ranked 12 in this year's Index), for example, is one of the densest cities in the world, with an expanding population. The government has committed to an extensive infrastructure building program, 'Build Build Build', which includes more than 2,000 projects. These are expected to improve congestion, increase power reliability, reduce the impact of climate change, and redevelop urban areas.
Smart infrastructure and technology create liveable cities Technological innovation in the form of greener and smarter buildings also plays an important role in answering the environmental challenges brought about by rapid growth. The Chinese city of Xi'an, ranked ninth in this year's Index, has installed an innovative 100-metre-tall air purifying tower to reduce smog and improve air quality.
FDI crucial for long-term momentum Sustainable long-term momentum and a maturing economy are often supported by long-term foreign direct investment (FDI) and transparent governance. India's fastest growing cities have been successful over recent years, attracting high levels of FDI, with structural reforms (including the Real Estate Regulation and Development Act), encouraging more real estate investment from foreign buyers. A similar story is playing out in Chinese cities, such as Beijing and Shanghai, which are both on the cusp of joining the ranks of the world's transparent real estate markets. "Transparency is vital in securing the long-term investment that leads to sustainable growth. With strong governance and planning, the private sector can work with city governments to drive change and bring benefits to the real estate market and wider commerciality of a city," concludes Kelly.
Methodology: JLL's City Momentum Index measures momentum for 131 of the world's most commercially active cities by tracking a range of socio-economic and commercial real estate indicators over a three-year period to identify the urban economies and real estate markets undergoing the most rapid expansion. The City Momentum Index presents a weighted overall score for the sub-scores of 20 variables. For each variable the model calculates a score based on the city's performance relative to the distribution of all 131 city regions, scaled from zero to one. The top-scoring city for each variable has a value of one, while the lowest-scoring city receives a value of zero. Variables focus on indicators of socioeconomic momentum and commercial real estate momentum. All real-estate data is sourced to JLL. Non-real estate data is drawn from a wide range of sources that includes Oxford Economics, United Nations, ACI, GaWC and fDI Markets. The Index also sources data from many national statistical offices.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with operations in over 80 countries and a global workforce of 88,000.
For further information, visit www.jll.com