Cost Management Report

April-June 2025 issue.
「Soaring Construction Costs Hit a Lull, but the Rate of Increase Holds Steady」

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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 herein 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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Soaring Construction Costs Hit a Lull, but the Rate of Increase Holds Steady

Despite a lull, construction costs continue higher

The rate of increase in construction costs remains at 2.7% -- the same as seen in the previous quarter – and at the lowest level since 2022. However, the annualized rate of increase continues to exceed 10% (Fig. 1). This compares to figures for 2013-2014, when construction costs were also seen to soar, as well as after 2022, when the maximum rate of increase was about the same. The time period during which the rate of cost hikes has exceeded 2% is longer, and the categorical contribution of MEP to the figure is greater.

The rate of cost increases remains the same as in the previous period

Amid the rise in construction costs since 2022, average profit margins on completed construction contracts at the four major general contractors *2 and eight semi-major general contractors*3 had been stagnant. The projected figures as of the end of FY2024 show an average of 8% and 7%, respectively (Fig. 2). Major general contractors’ financial statements also mention a projected recovery to the 10% level in the next fiscal year and beyond. This is thought to be the result of improved profitability at the time of order receipt.

  • Fig.1: Change in NSBPI *1 from the previous quarter Fig. 1: Change in NSBPI *1 from the previous quarter
    Prepared by Nikken Sekkei.

  • Fig. 2: Trends in average profit margin on completed construction contracts at major and semi-major general contractors Fig. 2: Trends in average profit margin on completed construction contracts at major and semi-major general contractors
    Figures for FY2024 are year-end estimates based on 3Q financial results.

Increasing awareness of price hikes and price shifting

On the other hand, “price pass-on sentiment” is higher in the construction industries than in the manufacturing and non-manufacturing industries. While the DI for sales prices has been declining in the manufacturing sector and remains flat in the non-manufacturing sector since June 2022, the DI for construction prices has continued to rise, recently exceeding the 40% point and continuing to reach record highs (Fig. 3). Going forward, the price pass-on sentiment trend needs to be monitored carefully.

Ready-mixed concrete prices are rising even as demand declines due to supply shortages

The risk of price hikes due to supply shortages is becoming apparent. In the previous issue of the Cost Management Report, we discussed restrictions on shipments of lightweight concrete. In the ready-mixed concrete industry as a whole, prices continue to rise while shipment volumes and the number of plants decline (Fig. 4). While rises in raw materials, transportation, and labor costs are factors, there are aspects of the supply system that cannot be maintained without raising prices. Other such materials and equipment may be latent in the market, and must be monitored closely.

  • Fig. 3: Trends in sales price DIs for construction, manufacturing, and non-manufacturing industries Fig. 3: Trends in sales price DIs for construction, manufacturing, and non-manufacturing industries
    Compiled from the Bank of Japan's National Survey of Enterprises and Short-Term Economic Outlook.

  • Fig. 4: Trends in ready-mixed concrete material prices, number of plants, and volume of shipments Fig. 4: Trends in ready-mixed concrete material prices, number of plants, and volume of shipments

    Prepared from Concrete Industry Trends by the National Federation of Ready-mixed Concrete Industry Associations and National Federation of Ready-mixed Concrete Cooperative Association (ZENNAMA), and from the Economic Research Association’s Estimated Materials. Shipment volume in FY2024 is forecasted and indexed, based on the actual Apr-Jan volume.

Cost Rises Slacken in Greater Tokyo, Kansai Regions

Nikken Sekkei Standard Building Price Index NSBPI *1

Cost rise momentum had been slowing until the previous quarter, but this quarter the rate of increase in the greater Tokyo and Kansai regions remained on par with the January-March period (Figures 5 and 6).

In the area of building construction, cost rises continued in temporary, frame, and finishing work in general. However, the momentum of the rise slowed from the previous quarter -- except for some categories such as temporary and concrete-related work. Rebar prices are likely to remain flat due to higher processing, assembly and other labor-related costs, although materials prices will continue to fall.

Regarding MEP work, labor costs, specialized construction costs, and expense ratios continue to rise. Compared to the greater Tokyo metropolitan area, upward price pressure was weak in Kansai, a trend similar to 2024. Some equipment prices are scheduled to be revised in the new fiscal year, so it is necessary to keep a close eye on how they will be reflected in price quotes.

  • Fig. 5: Change in NSBPI Fig. 5: Change in NSBPI
    In both Figures 5 and 6, the index for 25Q1 was set after revising the index for 24Q4 in the Kansai region*4.

  • Fig. 6: Percent Change in NSBPI & Building Work, MEP Work Contributions Fig. 6: Percent Change in NSBPI & Building Work, MEP Work Contributions

Steel prices remain flat, but select steel products see price cuts

At Tokyo Steel, steel materials sales prices have remained flat since price cuts were carried out in October 2024, but the company lowered its sales price for irregular steel bars by 3,000 yen/ton in March 2025 (Fig. 7). This is believed to be due to weak demand for steel products and overseas market conditions in China and other countries. On the other hand, some manufacturers have announced price hikes, citing rising labor, electricity, and increased fixed costs due to lower sales volumes, warranting attention.

The sense of a labor shortage continues to intensify in the con-struction industry

Regarding the employment DI, while signs of a softening in other industries imbued with a strong sense of labor shortages exist, momentum in the construction industry continues to rise at a faster pace than in the lodging and food services industries (Fig. 8).

  • Fig. 7: Steel Sales Price (Tokyo Steel) Fig. 7: Steel Sales Price (Tokyo Steel)
    Prepared from Tokyo Steel’s sales prices of Tokyo Steel.

  • Fig.8: DI for Employment (Large Companies) Fig. 8: DI for Employment (Large Companies)
    Compiled from Bank of Japan’s National Survey of Enterprises and Short-Term Economic Outlook.

*1: Nikken Sekkei Standard Building Price Index (NSBPI): An index showing price 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 from April to June, Q3 is from July to September, and Q4 is from October to December.

*2: Four companies: Obayashi Corporation, Kajima Corporation, Shimizu Corporation and Taisei Corporation.

*3: Hazama Ando Corporation, Kumagai Gumi Co., Ltd., Penta-Ocean Construction Co. Ltd., Tokyu Construction Co., Ltd., TODA CORPORATION, Nishimatsu Construction Co., Ltd. , Maeda Corporation, Sumitomo Mitsui Construction Company, Ltd. HASEKO Corporation was excluded from the index due to its greater weight in the condominium sector compared to other companies.

*4: The 24Q4 index figures for the NSBPI Kansai region were revised downward as follows.
Before revision: Index = 211.1, +4.6 pts year-on-year, +2.2% (contribution ratio: construction 0.5, MEP: 1.7).
After revision: Index = 210.2, +3.7 pts year-on-year, +1.8% (contribution: construction 0.5, MEP: 1.3).

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