Medium-term Market Recovery Driven by the Tokyo Olympics and Paralympics and Large-scale Redevelopment

「In the construction industry, the Ministry of Land, Infrastructure, Transport and Tourism’s outlook for construction investment in fiscal 2025 indicates that both public investment and private-sector capital investment are expected to remain firm, with total construction investment expected to remain above the previous fiscal year’s level. Sustained demand has been confirmed, particularly from disaster prevention and mitigation, measures to address aging infrastructure, and urban redevelopment projects.」

「According to the Ministry of Land, Infrastructure, Transport and Tourism’s Construction Orders by Major Contractors survey, private-sector construction orders received by the 50 largest domestic contractors have generally been increasing year on year, although they fluctuate from month to month.」

「Building construction orders at Japan’s 50 largest general contractors increased 6.9% year on year to ¥12.2633 trillion in the consolidated fiscal year, as large-scale redevelopment projects continued. The application of limits on overtime work in the construction industry from April 2024, together with an increase in extensions to project schedules, particularly for large-scale projects, also contributed to the increase. As of the end of August 2024, the value of construction work on hand had increased 9.4% from the same month a year earlier to ¥23.2972 trillion, equivalent to approximately 17 months of work.」

「With large-scale redevelopment projects progressing, the floor area of non-residential buildings started in the Tokyo metropolitan area rose approximately 6.7% from the same period of the previous year (October 2022–March 2023). Orders received for building construction by the 50 major general contractors also rose approximately 11.0% from the same period (source: Ministry of Land, Infrastructure, Transport and Tourism building statistics data).」

「During the cumulative first quarter under review, according to the Construction Work Orders Received Dynamic Survey by the Ministry of Land, Infrastructure, Transport and Tourism, private-sector construction orders received by the 50 major domestic general contractors rose approximately 8.3% year on year. Construction investment by manufacturers became particularly active, partly because of private-sector semiconductor plant construction and other projects, rising 26.9% year on year. Work on hand also continued to reach new record highs over the past year.」

「In the first half of fiscal 2023, the number of large-scale building projects in Tokyo’s 23 wards, each with a total floor area of at least 10,000 m², reached a 5-year high of 39, with total floor area of approximately 2.18 million m², 1.4 times the level in the same period of the previous year. Orders received for building construction by the 50 major general contractors also remained strong, and construction investment is expected to continue on a recovery trend.」

「During the cumulative third quarter under review, large-scale urban redevelopment projects continued in central Tokyo. According to Ministry of Land, Infrastructure, Transport and Tourism statistics, the floor area of non-residential buildings started in the Tokyo metropolitan area during the cumulative period fell 18.3% from the same period of the previous year, although the planned construction cost declined only 4.8% because of higher construction material costs and labor shortages. Orders received for building construction by the 50 major construction companies during the same period were almost unchanged, rising 0.6% year on year.」

「Although some large-scale redevelopment projects have begun, the floor area of non-residential buildings started in the Tokyo metropolitan area fell approximately 17.2% from the same period of the previous year (October 2021–March 2022), partly because of the impact of extended construction schedules caused by labor shortages. Orders received for building construction by the 50 major general contractors also fell approximately 1.2% from the same period (October 2021–March 2022). From the third quarter onward, orders received by general contractors are expected to increase, particularly for large-scale redevelopment projects in central Tokyo. However, the outlook is expected to remain uncertain, as profitability may deteriorate because the rising prices of materials and labor costs cannot be passed through promptly.」

「According to the Construction Work Orders Received Dynamic Survey by the Ministry of Land, Infrastructure, Transport and Tourism, private-sector construction orders received by the 50 major domestic general contractors rose 4.6% year on year, as construction investment by manufacturers became more active. As orders recovered from the decline during the COVID-19 pandemic, the 50 major contractors’ work on hand reached a record-high level.」

「In the construction industry, the supply of large office buildings in Tokyo’s 23 wards fell sharply from 1.85 million m² in 2020 to 610,000 m² in 2021 and 510,000 m² in 2022, but is expected to recover to 1.32 million m² in 2023. The Construction Work Orders Received Dynamic Survey by the Ministry of Land, Infrastructure, Transport and Tourism also shows that orders received for building construction by the 50 major general contractors rose 9.7% year on year from October 2021 to September 2022, continuing a recovery trend.」

「Construction investment increased in the third quarter, and orders received for building construction by the 50 major general contractors rose 34.4% year on year, indicating a recovery trend from the COVID-19 pandemic. However, the increase in construction investment was also attributable to surging prices for construction materials and fuel, while lower profitability resulting from intensifying competition for large-scale urban redevelopment projects in central Tokyo remains a concern. We expect the uncertain outlook to continue.」

「During the cumulative first quarter under review, few properties were completed in the construction industry because it was in a lull between large-scale urban redevelopment projects in central Tokyo. However, orders for large-scale redevelopment projects scheduled for completion from the next fiscal year onward were trending upward.」

「In the construction industry, the supply of large office buildings in Tokyo’s 23 wards is expected to fall sharply from 1.85 million m² in 2020, the highest level in the past 20 years, to 610,000 m² in 2021 and 510,000 m² in 2022. Meanwhile, according to the Construction Work Orders Received Dynamic Survey conducted by the Ministry of Land, Infrastructure, Transport and Tourism, orders received for building construction by the 50 major general contractors rose 11.7% from the previous year’s corresponding period between October 2020 and September 2021, indicating a recovery trend. The average carryover construction balance of the 5 leading super-general contractors for the fiscal year ended March 2021 was also ample at ¥1.9229 trillion, the highest level in the past 10 years, although concerns remain about deteriorating profitability as competition for orders intensifies.」

「From the fourth quarter onward, the trend toward an increase in large-scale urban redevelopment projects in central Tokyo aimed at completion in 2–3 years is expected to continue. However, the outlook is expected to remain uncertain, with profitability on construction work expected to deteriorate because competition for orders is intensifying and labor and material costs may remain elevated.」

「From the third quarter onward, large-scale urban redevelopment projects in central Tokyo are expected to support a recovery trend. However, the outlook is expected to remain uncertain, as the vacancy rate in Tokyo’s five central wards rose to 5.42% in March for the 13th consecutive month, while higher labor costs caused by labor shortages and lower profitability resulting from intensifying competition for orders are also concerns.」

「During the cumulative first quarter under review, construction investment declined as the economy slowed because of the spread of COVID-19. According to a statistical survey by the Ministry of Land, Infrastructure, Transport and Tourism, orders received for building construction by the 50 major general contractors fell 4.1% year on year in the quarter and 15.9% year on year on a calendar-year basis in 2020.」

「Construction investment in urban redevelopment, inbound tourism-related facilities and new logistics hubs had generally remained firm in the construction industry. However, private-sector investment slowed after the spread of COVID-19, and the floor area of non-residential buildings started in Tokyo during the consolidated fiscal year fell approximately 14% year on year.」

「Meanwhile, the floor area of nonresidential construction starts in the Tokyo metropolitan area fell approximately 22% year on year, partly because Tokyo Olympics-related facilities were completed and the market entered a gap between new construction projects.」

「From the third quarter onward, the construction industry overall was expected to maintain a certain level of work on hand, supported by medium- to long-term demand for urban redevelopment projects and logistics hubs even after construction investment in facilities related to the Tokyo Olympic Games reached a milestone. However, concerns about a downturn in the global economy accompanying the worldwide spread of COVID-19 could affect domestic construction investment, and we expect the uncertain outlook to continue.」

「During the cumulative first quarter under review, construction investment in facilities related to the Tokyo Olympic Games reached a milestone in the construction industry. However, demand remained strong for urban redevelopment projects and the development of logistics hubs, and the order backlog for non-residential construction at major general contractors rose to approximately ¥6.3 trillion, the highest level on record according to Ministry of Land, Infrastructure, Transport and Tourism statistics, as of the end of October 2019.」

「Demand for high-function, multi-tenant logistics warehouses also remains firm. Although construction demand is expected to settle temporarily, the industry overall is expected to continue on a gradual recovery trend after the Tokyo Olympic Games.」

「During the nine-month period ended [third quarter], signs of slowing construction demand began to emerge as Tokyo Olympics-related work entered its final stages and rush demand ahead of the consumption tax increase subsided. Domestic orders received by the 8 major general contractors are also expected to fall to their lowest level in 6 years. However, office demand remains strong, particularly in central Tokyo, and redevelopment projects continue to be planned. Although demand is expected to stabilize temporarily, the industry as a whole is expected to remain on a gradual recovery track over the medium term.」

「Office demand remained high, particularly in central Tokyo, with the average vacancy rate in Tokyo’s five central wards falling to 1.78%. Redevelopment projects continued to be planned, and the industry overall followed a gradual recovery trend.」

「During the cumulative first quarter under review, construction demand associated with redevelopment in central Tokyo and the 2020 Tokyo Olympic Games continued to trend upward, while supply and demand for construction materials and skilled workers remained tight.」

「During the cumulative third quarter under review, the construction industry continued to see orders received for building construction and other work follow a gradual year-on-year recovery trend.」

「During the cumulative second quarter under review, the construction industry followed a gradual recovery trend overall. Orders received for building construction and other work recovered gradually year on year from October 2017, while the floor area of non-residential buildings started also gradually increased as redevelopment projects progressed in central Tokyo. From the third quarter onward, concerns remain about higher costs resulting from labor shortages and industry-wide initiatives such as improving the treatment of construction workers and reforming work styles. However, construction demand associated with redevelopment in central Tokyo and the 2020 Tokyo Olympic Games is expected to remain firm, and the business environment, particularly in the Tokyo metropolitan area, is expected to continue recovering.」

「In the construction industry, orders received by major general contractors have been trending higher year on year, supported by large-scale urban redevelopment in central Tokyo and construction demand ahead of the 2020 Tokyo Olympic Games.」

「In addition to hotel and commercial facility construction ahead of the Tokyo Olympic Games, investment in large-scale urban redevelopment projects in central Tokyo and elsewhere is expected to remain firm, and the industry’s overall business environment is expected to continue recovering over the medium term.」

「However, private-sector non-residential construction investment is expected to trend upward, centered on future large-scale development projects in central Tokyo, and the industry’s overall business environment is expected to continue on a recovery trend.」

「The industry’s overall business environment is expected to continue on a recovery trend, as progress on large-scale development projects in central Tokyo is helping private-sector construction starts recover year on year.」

「In the construction industry, construction investment has temporarily stagnated because of higher construction costs resulting from a sharp increase in labor costs. However, numerous large-scale urban redevelopment projects are planned in central Tokyo, in addition to hotel and commercial facility construction ahead of the Tokyo Olympic and Paralympic Games, and the industry’s overall business environment is expected to continue on a recovery trend.」

「In addition to hotel and commercial facility construction ahead of the Tokyo Olympic and Paralympic Games, numerous large-scale urban redevelopment projects are planned in central Tokyo. Investment in large office buildings and other properties is expected to remain firm, and the industry’s overall business environment is expected to continue on a recovery trend over the medium term.」

「In addition to hotel and commercial facility construction ahead of the Tokyo Olympic and Paralympic Games, numerous large-scale urban redevelopment projects are planned in central Tokyo. Investment in large office buildings and other properties is expected to remain firm, and the industry’s overall business environment is expected to continue on a recovery trend over the medium term.」