Cost Management Report

October-December 2024 issue.
「Construction Volume Decrease Fails to Narrow Labor Supply-Demand Gap」

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This report has been prepared by the Cost Management Group of the Architectural Design Dept. of Nikken Sekkei Ltd for information purposes. While the information in this report is current as of the date of publication, its completeness is not guaranteed. The contents are subject to change without notice. Unauthorized reproduction of this report is prohibited.

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Construction Volume Decrease Fails to Narrow Labor Supply-Demand Gap

Real construction investment and floor space starts face declining trends

Real construction investment has been declining since FY2017, and floor space starts have been declining since FY2013 (Fig. 1). The data indicate that construction demand is on a downward trend in terms of real construction volume, excluding the effects of price fluctuations.

A shortage of workers and work style reforms fuel the declining labor input trend

The construction workforce is also on a downward trend. Since 2012, the number of workers has decreased 4%, while hours worked has fallen 8%. These facts are partly due to the impact of reforms to the way people work (Fig. 2). Labor input, which is calculated by multiplying the number of workers by hours worked, has decreased by 12% compared to 2012.

  • Fig.1: Real Construction Investment and Construction Start Floor Area Fig. 1: Real Construction Investment and Construction Start Floor Area
    Compiled from the Ministry of Land, Infrastructure, Transport and Tourism (MLIT)’s Statistical Survey of Construction Starts and Construction Investment Outlook.

  • Fig. 2: Trends in Labor Input (= Number of Workers x Working Hours) Fig. 2: Trends in Labor Input (= Number of Workers x Working Hours)
    Compiled from the Statistics Bureau of Japan’s Labor Force Survey.

Increased labor input per floor area is one factor contributing to higher construction unit costs

Amid the growing sense of a labor shortage, the decline in floor space area has been accelerating (Fig. 3). The decline in floor space area has exceeded the decline in labor input. This indicates an increase in manpower required to construct comparable floor areas, such as an increase in degree of construction difficulty. Labor input cost per floor area, which includes wage increases, has also risen 35% from 2012. This increase in labor input per floor area is thought to have caused labor cost hikes that have exceeded wage increases, contributing to higher construction unit prices.

The labor demand-supply gap is widening due to the increase in construction project scales

Meanwhile, the scale of projects is expanding, especially in central Tokyo (Fig. 4). Large-scale projects require a large amount of labor to be invested at one time, making it highly difficult to secure labor. The gap between labor supply and demand is not expected to be resolved in the future. Coupled with the trend of increasing labor input per floor space, labor cost increases are expected to continue.

  • Fig. 3: Trends in Labor Input and Cost Per Floor Area for Construction Starts Fig. 3: Trends in Labor Input and Cost Per Floor Area for Construction Starts
    Compiled from the Ministry of Health, Labour and Welfare (MHLW)’s Monthly Labor Survey, the Ministry of Internal Affairs and Communications (MIC)’s Labor Force Survey, and the Ministry of Land, Infrastructure, Transport and Tourism (MLIT)’s Survey of Construction Starts. Figures for floor space are based on annual totals.

  • Fig. 4: Trends in the supply of office space of 100,000 sqm or more per property in Tokyo‘s 23 wards (moving average for the last three years) Fig. 4: Trends in the supply of office space of 100,000 sqm or more per property in Tokyo‘s 23 wards (moving average for the last three years)

    Figures are based on Mori Building's Survey of Market Trends for Large Office Buildings in the 23 Wards of Tokyo.

Construction Slackens Slightly, but MEP Momentum Stays Strong, while Overall Construction Costs Continue to Rise

Nikken Sekkei Building Price Index (NSBPI)*1

The upward momentum in all districts fell slightly compared to the previous quarter. The upward momentum in construction has slowed somewhat, but upward momentum in MEP construction remains strong, and prices continue to rise (Figures 5 and 6).

In addition to increases in labor, specialty construction costs and price revisions by equipment manufacturers, the cost ratio is also rising for MEP construction. In particular, subcontractors in the Kansai region are becoming more selective about orders in anticipation of large-scale projects such as IRs (integrated resorts) after Expo 2025; their estimates continue to be more bullish than those of other regions.

Regarding construction work, prices for temporary construction, framing and finishing work rose overall, but those for reinforcing steel, steel frame materials, and other materials were on a downward trend. Some construction types saw flat or declining prices, which tempered the upward momentum of the overall construction market.

  • Fig. 5: Changes in NSBPI Fig. 5: Changes in NSBPI

  • Fig. 6: % Change in NSBPI, Construction Work vs. MEP Work Contribution Fig. 6: % Change in NSBPI, Construction Work vs. MEP Work Contribution

Wage hikes are underway to boost the labor environment

Wages for construction workers continue to rise as part of efforts to improve the labor environment to secure workers (Figure 7). Wage increases in the job-specific construction industry (mainly subcontractors) have been following the general construction industry (mainly prime contractors) since 2018. This trend is expected to continue.

Signs of steel price cuts appear

Tokyo Steel lowered the selling price of its steel products by about 10,000 yen per ton in October (Figure 8). This is due to weakening demand for steel products in Japan and overseas. Domestic construction orders for ordinary steel products have been on a downward trend since 2018. The possibility of widespread price reductions requires close monitoring.

  • Fig. 7: Monthly Cash Salaries in the Construction Industry Fig. 7: Monthly Cash Salaries in the Construction Industry
    Compiled from the Ministry of Health, Labour and Welfare (MHLW)’s
    Monthly Labor Survey.

  • Fig.8: Steel Price Trends (Tokyo Steel) & Construction Orders for Steel Products Fig. 8: Steel Price Trends (Tokyo Steel) & Construction Orders for Steel Products
    Compiled from The Japan Iron and Steel Federation (JISF)’s Monthly Steel Supply and Demand Statistics, Orders for Ordinary Steel Products by Application (Domestic Demand), and Tokyo Steel Corporation’s Sales Prices report.

*1: The Nikken Sekkei Standard Building Price Index (NSBPI) shows movements in construction prices, calculated independently by Nikken Sekkei Ltd. Using standard rental office space as a quantitative model, the index is calculated and converted into an index of construction prices that reflect prevailing prices, as identified through independent surveys from time to time. The first quarter (Q1) is from January to March, Q2 is April - June, Q3 is July - September, and Q4 is October - December.

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