Cost Management Report

July-September 2025 issue.
「The Supply-and-Demand Gap Between Labor and Construction Capacity Persists; Some Signs of a Turning Point Appear」

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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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The Supply-and-Demand Gap Between Labor and Construction Capacity Persists; Some Signs of a Turning Point Appear

Construction material prices remain stable

While prices for ready-mixed concrete continue to rise due to the 14% price hikes announced by the Tokyo Ready-mixed Concrete Cooperative Association starting from April 2025, steel prices are falling due to reduced demand. The corporate price index for construction materials has also remained flat since the second half of 2024 (Figure 1).

The supply-demand gap for labor is widening

The effective job vacancy rate for construction-related jobs remains at a high level compared other occupations, and the shortage has worsened compared to 10 years ago (Figure 2). To address labor shortages, moves such as mergers among general contractors and business alliances between MEP subcontractors, etc. are attracting attention.

  • Fig.1: Trend in materials prices Fig. 1: Trend in materials prices
    Created using data from the Bank of Japan's Corporate Goods Price Index.

  • Fig. 2: Effective job vacancy ratios for FY2014 and FY2024 Fig. 2: Effective job vacancy ratios for FY2014 and FY2024
    Created using data from the Ministry of Health, Labour and Welfare's (MHLW) General Employment Situation (Employment Security Statistics).

The gap between construction capacity supply and demand remains high

When examining the number of months of backlogged orders adjusted for price fluctuations, the four major general contractors*1 have maintained high levels since fiscal 2021. These are expected to increase in fiscal 2025. At seven mid-sized companies*2 they have continued to rise since fiscal 2019, but are projected to decline in fiscal 2025 while remaining at high levels (Figure 3). While the impact of prolonged construction periods due to the super-large-scale aspect of projects is a factor, the "busy period" is expected to continue for now.

Differences between initial forecasts and actual construc-tion profit margins have narrowed

Completion profit margins at four major general contractors has fallen below initial forecasts since fiscal 2021, when price hikes began, but the situation improved in fiscal 2024. The completion margin for fiscal 2025 is expected to be 9%, reflecting improved profitability at the time of order placement, which is also reflected in the financial results (Figure 4). On the other hand, comments indicating that order decisions will be made with consideration for maintaining relationships with important customers were seen in financial reports, and some projects have been estimated at cost levels below the current market, indicating a possible shift in the tide.

  • Fig. 3: Monthly value of work-in-progress for major and mid-sized general contractors Fig. 3: Monthly value of work-in-progress for major and mid-sized general contractors
    Compiled from each company's financial statements. Calculated by dividing the value of work in progress by annual sales (three-year moving average), multiplied by 12 months.

  • Fig. 4: Avg. completion profit margins at four major general contractors Fig. 4: Avg. completion profit margins at four major general contractors

    Prepared from each company's financial data.

Quarter-on-Quarter Growth Rates Remain Around 2% in all Regions

Nikken Sekkei Standard Building Price Index NSBPI *3

Quarter-on-quarter growth rates for each region are in the 2% range. The contribution of MEP work continues to be significant compared to building construction work, which is showing a decline in growth (Figures 5 and 6). Building construction work continues to rise with regard to temporary, concrete, and some categories of finishing work, but overall momentum is weakening, while steel materials are showing declines. Regarding MEP work, labor costs, specialized construction costs, and expense ratios are rising at the same pace as in the previous quarter amid ongoing supply shortages. The immediate reflection of price revisions for some kinds of equipment in new fiscal year estimates also contributed to the rise. The gradual increase in miscellaneous expense ratios is also influencing the index's overall rise.

  • Fig. 5: Change in NSBPI Fig. 5: Change in NSBPI

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

Labor input decreased in 2024
Both worker count and working hours decreased

Labor input in 2024 decreased by 3% year-on-year. The breakdown shows a 1% decrease in the number of employed workers and a 2% decrease in working hours, reflecting the strong impact of overtime work limit regulations (Figure 7). The trend of decreasing working hours is likely to continue. Improvements in labor productivity are necessary to alleviate labor shortages.

The US dollar-denominated NSBPI increased

When viewed in U.S. dollar terms, the NSBPI has remained largely flat since 2022, with the sharp rise in prices offset by yen weakness. However, it began to rise since the second half of 2024, following a pause in yen weakness (Figure 8). Changes in domestic construction prices from the perspective of overseas investors should also be noted.

  • Fig. 7: Trend in Labor Input (= Employee Count × Working Hours) Fig. 7: Trend in Labor Input (= Employee Count × Working Hours)
    Compiled from the Ministry of Internal Affairs and Communications’ (MIC) Labor Force Survey.

  • Fig.8: NSBPI (US dollar-denominated) Fig. 8: NSBPI (US dollar-denominated)
    Created based on Nikken Sekkei data and the Bank of Japan’s exchange rates. The US dollar-denominated index is calculated using the Sept. 2008 exchange rate as its base.

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

*2: Seven companies: Hazama Ando Corporation, Kumagai Gumi Co., Ltd., Penta-Ocean Construction Co., Ltd., Tokyu Construction Co., Ltd., Toda Corporation, Nishimatsu Construction Co., Ltd., and Maeda Corporation. Haseko Corporation was excluded because it has a larger share of the condominium sector compared to other companies. Sumitomo Mitsui Construction Company, Ltd. was excluded because its performance forecast for fiscal 2025 was not disclosed.

*3: 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.

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