Differences in industry sentiment caused by concentration of orders in large-scale redevelopment projects in the Tokyo metropolitan area

「Amid a succession of large-scale redevelopment projects in central Tokyo, Ministry of Land, Infrastructure, Transport and Tourism statistics show that the cumulative floor area of non-residential buildings started in the Tokyo metropolitan area declined 18.3% year on year for the same cumulative period. However, planned construction costs declined only 4.8% year on year due to surging construction material prices and labor shortages. Construction orders received by the 50 major construction companies during the same cumulative period were virtually unchanged, increasing 0.6% year on year.」

「The value of construction work held by the 50 major contractors has reached a record-high level following the recovery in orders received after the decline during the COVID-19 pandemic. As uncertainty about the economic outlook intensifies against a backdrop of heightened tensions surrounding the situation in Ukraine and rising risks from yen depreciation and inflation, general contractors are beginning to shift toward an order-taking policy that places greater emphasis on profitability, although price competition across the industry is expected to continue for some time.」

「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.」

「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.」

「From the third quarter onward, we expect the uncertain conditions to continue. Although the construction work held by general contractors is increasing, mainly in large-scale redevelopment projects in central Tokyo, concerns remain about deteriorating profitability due to continued increases in material prices and labor costs.」

「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.」

「The value of construction orders received by the 50 major general contractors increased 11.7% year on year for the same period, indicating a recovery trend. The average value of carryover construction work held by the 5 major super-general contractors for the fiscal year ended March 2021 was also ample, reaching ¥1.9229 trillion, the highest level in the past 10 years, but concerns have emerged over deteriorating profitability as competition for orders intensifies.」

「In the current third quarter, floor space for starts of non-residential buildings in the Tokyo metropolitan area increased 40.1% year on year, while construction orders received by the 50 largest construction companies increased 21.2% year on year, indicating a recovery trend compared with the previous year, when the first state of emergency was declared. However, projects are concentrated in large-scale redevelopment in central Tokyo, and concerns have been raised about declining profitability due to intensified competition for orders.」

「No new business or other risks arose during the three months ended 30 June. There were also no material changes to the business and other risks described in the securities report for the previous fiscal year.」

「With labor in tight supply in the Tokyo metropolitan area, facilities related to the Tokyo Olympics and large-scale redevelopment projects reached completion one after another, and finishing work entered its peak period.」

「No new business or other risks arose during the three months ended 30 June. There were also no material changes to the business and other risks described in the securities report for the previous fiscal year.」

「No new business or other risks arose during the cumulative third quarter of the current consolidated fiscal year. There were also no material changes to the business or other risks described in the annual securities report for the previous consolidated fiscal year.」

「There were no newly emerging business or other risks during the cumulative second-quarter period. In addition, there were no material changes in the business or other risks described in the annual securities report for the previous consolidated fiscal year.」

「No new business or other risks arose during the three months ended 30 June. There were also no material changes to the business and other risks described in the securities report for the previous fiscal year.」

「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.」