Cost Management Report

This report has been prepared by the Cost Management Group of Design & Technical 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.

Construction Cost Trends Show Signs of Change; Weakness in Surge Centers on Building Construction

Current momentum of construction price hikes weakens

Since 2022, construction prices have continued to rise 16-20% per year. In the most recent quarter, however, the upward price momentum has weakened (Fig. 1). When considering factors that have contributed to the increase over the past three years by task type, construction was significant in 2022, while MEP impact grew in 2023 and 2024.

Labor costs and specialized construction work spur rise in MEP work

Looking at the factors behind the increase in construction costs, the industry continued to see certain increases in finishing materials, labor costs, and expenses. The extent of the increases fell, however, as a result of a halt in the rise of steel prices, which carries heavy weight in the construction industry. The rate of increases in electrical, HVAC and sanitation costs has remained high, although they peaked in 2023 due to the large impact of labor and specialized construction costs (Fig. 2).

Fig. 1: Annual increase in NSBPI*1
Compiled from Nikken Sekkei data.
Fig. 2: Trends in annual rates of increase and contribution to NSBPI by construction work type
For each construction type, from left to right: (1)annual rate of increase in 2022, (2) annual rate of increase in 2023, (3) annual rate of increase in 2024, (4) annual rate of increase in 2024 for Q3-Q4. Prepared by Nikken Sekkei. Air conditioning materials include duct work costs.

Steel prices fall but ready-mixed concrete prices rise

Steel prices, which had been a factor in the rise in construction costs, have been falling due to weakening demand (Fig. 3). On the other hand, Tokyo Ready-mixed Concrete Cooperative announced a 14% price increase from April 2025. The main reason for the hike is the rise in transportation and labor costs for raw materials and ready-mixed concrete manufacturers. It should be noted that price hikes for materials due to higher transportation and labor costs are expected to continue into the future.

Machinery subcontractors are becoming more selective in their orders for industrial MEP

There has been no improvement in the tight supply situation at subcontractors, and it continues to be difficult to secure MEP subcontractors. Among these, mechanical subcontractors are increasing their share of orders for industrial facilities such as factories, laboratories, and data centers, which have relatively short construction periods. This can be seen in the selective nature of orders (Fig. 4). In addition, there is a growing preference to train young construction managers for small and medium-sized projects. Price differentiation according to project usage and size is also beginning to emerge.

Fig. 3: Steel and ready-mixed concrete prices
Compiled from the Bank of Japan's Corporate Goods Price Index.
Fig. 4: Ratio of industrial facilities construction-to-orders received

Prepared from each company's financial data.

Momentum Weakens, but Continues to Rise

Nikken Sekkei Standard Building Price Index NSBPI *1

Although upward momentum for both building and MEP construction is slowing compared to previous years, the annual rate of increase continues to exceed 10% (Figures 5 and 6). In building construction, materials prices for such items as reinforced steel and steel frames fell. Generally speaking, costs for temporary construction, frame and finishing work rose, but the overall upward momentum slowed due to flat or falling prices for some construction types.
For MEP work, labor, specialized construction costs, as well as cost-to-income ratios rose, albeit at smaller rates than in the past. In the Kansai region in particular, there were efforts to reduce prices at some projects, depending on the application and project size. On the other hand, on some types of construction projects, upward pressure on materials prices such as concrete, along with labor costs, is increasing, necessitating close monitoring.

Fig. 5: Changes in NSBPI
※The display period has been changed from this issue.
Fig. 6: % Change in NSBPI, Construction Work vs. MEP Work Contribution

Revisions to the Construction Industry Law and other laws have changed contracting rules

The Construction Industry Act and other related laws were revised in June, 2024 with the aim of securing more construction workers (Fig. 7). Provisions regarding forestalling labor cost inflows due to soaring material prices came into effect later on December 13. The Ministry of Land, Infrastructure, Transport and Tourism (MLIT)’s guidelines were also revised, and provide a template of how to calculate changes in contract prices, etc., as determined via consultation. Nevertheless, we need to pay attention to future developments, due to the possibility that a prospective contractor may propose a project-specific calculation method.

The risk of increased construction costs due to lightweight concrete shipment restrictions persists

The supply and demand for lightweight aggregate, a material used in lightweight concrete used in high-rise buildings, has been tight since April 2021, when only one domestic producer was available. As construction investment in high-rise buildings remains strong and demand remains excessive, restrictions on shipments of lightweight concrete are expected to continue, and the risk of higher construction costs due to these restrictions should be kept in mind (Fig. 8).

Fig. 7: Major impacts of revisions to the Construction Industry Act and other laws on private sector clients
Prepared by Ministry of Land, Infrastructure, Transport and Tourism (MLIT)’s “Third Generation Three Bearer Laws” (Construction Industry Act, Public Works Procurement and Contracts Act, and Public Works Quality Assurance Promotion Act).
Fig. 8: Impact of restrictions on shipments of lightweight concrete
Prepared by Nikken Sekkei.

*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.

*2: Four companies: Asahi Kogyosh Co., Ltd. Taikisha Ltd. DAI-DAN Co., Ltd. and Takasago Thermal Engineering Co., Ltd.

*3: Five companies: Obayashi Corporation, Kajima Corporation, Shimizu Corporation, Taisei Corporation.

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