Rising Construction Costs Driven by Tight Skilled-Labor Markets and Demand for Higher Quality

「受注案件における工期の長期化などが引き続き見られるなか、労務費の上昇や原材料価格の高止まりにも対応しつつ、品質確保と収益性の両立に努めております。」

「Meanwhile, material prices and labor costs remain high, and rising construction costs are putting pressure on profitability.」

「The floor area of non-residential building starts in the Tokyo metropolitan area was approximately 10.18 million square meters, a slight decline of 1.2% from the same period of the previous year, while planned construction costs were approximately ¥4.0956 trillion, a substantial increase of 29.7% year on year. Reflecting higher labor, material, and other costs, the planned construction cost per square meter at the start of construction increased 31.3% year on year, continuing its substantial increase from the previous year.」

「From the third quarter onward, although the volume of construction work is expected to increase as large-scale redevelopment projects progress, concerns remain that profitability will deteriorate because labor shortages and overtime regulations in the construction industry from April onward will increase costs, including labor costs, and the outlook is expected to remain uncertain.」

「In addition to material prices remaining high amid the overall inflationary trend in Japan, construction costs are rising because labor costs are increasing as a result of labor shortages caused by a declining construction workforce. In the office leasing market in Tokyo's five central wards, vacancy rates remained high at 6.03% in December 2023, according to a survey by Miki Shoji, while average rents per tsubo remained below ¥20,000 per tsubo for 10 consecutive months. As large volumes of newly built office space are expected to continue being supplied for the time being, it is expected to take time to absorb the vacant space. In the construction market going forward, redevelopment in central urban areas and large-scale factory construction are expected to continue, while the application of caps on overtime hours in the construction industry and other factors are expected to make labor shortages more pronounced. Passing higher construction costs through to prices is expected to remain a challenge, and performance is expected to remain difficult to forecast.」

「From October 2022 to September 2023, the planned construction cost per square meter at the start of construction for non-residential buildings in the Tokyo metropolitan area increased approximately 16.9% year on year, raising concerns about lower project profitability due to higher labor and material costs. In addition, while labor shortages in the construction industry remain unresolved, the application of the cap on overtime hours, also referred to as the construction industry's 2024 problem, will begin in April next year,」

「Although soaring construction material prices and rising labor costs are gradually being incorporated into construction costs, concerns about lower earnings due to competition for large-scale redevelopment projects continue, and the outlook is expected to remain uncertain.」

「In the construction industry during the six-month period ended the second quarter of the current consolidated fiscal year, the increase in construction material prices resulting from Russia's invasion of Ukraine and yen depreciation caused by the interest-rate differential between Japan and the United States has not necessarily been fully passed on to order prices, and project profitability has not recovered. Although some large-scale redevelopment projects have begun to move forward, construction periods have also been extended because of labor shortages,」

「In addition to tight supply and demand caused by supply-chain disruptions during the COVID-19 pandemic, material prices have risen amid Russia's invasion of Ukraine and the rapid depreciation of the yen. Concerns remain that the construction industry's earning power will decline further unless price pass-through progresses.」

「Meanwhile, rising construction material prices and labor costs are difficult to avoid, raising concerns about lower profitability, and the uncertain business environment is expected to continue.」

「However, although higher construction investment is partly attributable to soaring prices for construction materials and fuel, concerns remain about lower earnings due to intensified competition for large-scale redevelopment projects in central urban areas, and the outlook is expected to remain uncertain.」

「In the construction industry during the six-month period ended the second quarter of the current consolidated fiscal year, prices of major construction materials rose sharply as resource prices increased amid heightened tensions over the situation in Ukraine and the yen weakened further because of the wider interest-rate differential between Japan and the United States. In addition, construction schedules were affected by delays in equipment deliveries resulting from global supply-chain disruptions, increasing costs and reducing profitability. From the third quarter onward, although the order backlog of general contractors is expected to increase, particularly for large-scale redevelopment projects in central urban areas, the outlook is expected to remain uncertain, with concerns about deteriorating profitability due to continued high material prices and rising labor costs.」

「According to a statistical survey by the Ministry of Land, Infrastructure, Transport and Tourism, domestic building orders received by the 50 major general contractors in December increased 12% year on year, driven by higher orders for office and distribution facilities. However, intense competition among general contractors continues, causing margins at the time of order acceptance to decline. In addition, concerns remain that higher material prices resulting from soaring crude oil prices will reduce margins.」

「Deteriorating profitability due to intensifying competition for orders is a concern.」

「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.」

「Declining construction unit prices due to weakening construction investment are also a concern going forward, and performance is expected to remain difficult to forecast.」

「In addition, supply and demand for construction work are tending to ease as construction investment is restrained, raising concerns about deteriorating profitability as price competition intensifies.」

「During the six-month period ended [second quarter], concerns over soaring construction costs and labor shortages increased in the construction industry, and the nationwide floor area of building construction starts fell approximately 7.9% year on year as a result of extended construction periods, plan revisions and other factors.」

「Meanwhile, labor shortages in the construction industry continue, and performance remains difficult to forecast because of project revisions, construction delays, and other effects.」

「Currently, performance remains difficult to forecast because labor shortages are causing construction delays and other problems.」

「Meanwhile, tight supply and demand for construction materials and skilled workers has kept condominium construction costs high, and the floor area of condominium construction starts remains depressed. Beyond the third quarter, performance is expected to remain difficult to forecast because soaring material costs, tight labor supply and demand, project revisions, construction delays, and other factors are expected to continue.」

「Although the business environment for the industry as a whole is expected to continue recovering beyond the second quarter, the outlook for performance is expected to remain difficult because soaring material costs, tight labor supply and demand, project revisions, construction delays, and other factors make performance difficult to forecast.」

「However, as large-scale redevelopment projects in the Tokyo metropolitan area account for much of this activity, differences in business sentiment within the industry have emerged. Concerns about higher costs due to tight labor supply and demand, improved treatment of construction workers, and work-style reforms also remain, leaving the outlook uncertain.」

「Although concerns about rising costs due to continued labor shortages and industry-wide initiatives to improve the treatment of construction workers and reform working practices are expected to continue beyond the third quarter, construction demand driven by redevelopment in central urban areas and the 2020 Tokyo Olympics is expected to remain firm, supporting a continued recovery trend in the business environment, particularly in the Tokyo metropolitan area.」

「Although concerns about rising costs due to tight labor supply and demand and social demands for higher quality and performance are expected to continue beyond the second quarter, construction demand driven by redevelopment in central urban areas and the 2020 Tokyo Olympics is expected to remain firm, supporting a continued recovery trend in the industry's overall business environment.」

「The business environment surrounding the industry remains uncertain, with continued concerns about higher costs, including rising labor costs due to tight labor supply and demand and social demands for higher quality.」

「In the construction industry, construction investment has stagnated due to soaring construction costs and other factors, while the floor area of private-sector construction starts is broadly flat year on year.」

「In the construction industry, construction investment had temporarily stagnated because of soaring construction costs, with the supply of large office buildings in Tokyo's 23 wards falling below the average of the past 20 years. However, as large-scale development projects in central Tokyo progressed, the floor area of private-sector construction starts began to recover year on year, and the business environment for the industry as a whole is expected to remain on a gradual recovery track.」

「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.」

「Japan's construction market is currently performing steadily, supported by the 2020 Tokyo Olympic and Paralympic Games and national resilience plans. However, concerns about rising costs due to tight labor supply and demand and social demands for higher quality and performance remain, and the outlook is expected to remain uncertain.」