Cost Management Report

January-March 2026 issue.
「Construction Costs are Rising, but Heading Toward Stabilization」

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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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Construction Costs are Rising, but Heading Toward Stabilization

The 2025 construction cost rate of increase halved vs. the prior year

Construction costs have risen at an annual rate of 16-20% since 2022, but the increase for 2025 is projected at just 8%, with the most recent quarter showing an annualized rate of 5%, indicating that the upward trend is stabilizing (Fig. 1). While equipment costs have been a major recent contributor, a time lag exists between cost movements for construction and equipment. Following construction costs, where the rate of increase has already begun to decline, equipment costs are also expected to converge.

Factors driving equipment installation costs shift from labor to materials and specialized construction work

By construction type, factors in the upward pressure on building construction costs have weakened in the most recent quarter, as steel prices have turned downward. While the momentum in labor cost increases for equipment installation work appears to be easing, upward pressure remains high for electrical work due to materials costs, and for air conditioning and sanitation work due to specialized construction costs (Fig. 2).

  • Fig.1: Annual increase in NSBPI*1 Fig. 1: Annual increase in NSBPI*1
    Compiled by Nikken Sekkei.

  • Fig. 2: Trends in Annual Rates of Increase and Contribution of NSBPI by Construction Type Fig. 2: Trends in Annual Rates of Increase and Contribution of NSBPI by Construction Type
    Trends in Annual Rates of Increase and Contribution of NSBPI by Construction Type

Full-year forecasts for completed construction profit margins have been revised upward

Completed construction profit margins at the four major general contractors*2 continue to improve. Their FY2025 earnings forecasts were revised upward from an initial average of 9% to 11% in their most recent second-quarter earnings announcements (Fig. 3). Looking ahead, multiple companies have commented that further improving profitability at the time of order acquisition will be difficult, given project postponements, cancellations, and other changes to the prevailing market environment. Therefore, the rise in completed construction profit margins is expected to moderate.

The gap between the NSBPI and corporate and consumer price indices has narrowed

The gap between the NSBPI and year-on-year changes in the corporate and consumer price indices has narrowed (Fig. 4). Going forward, the NSBPI is expected to converge toward the two above indices. However, it may settle at a level that incorporates increases in labor costs, such as wage hikes aimed at securing construction industry workers.

  • Fig. 3: Trends for Avg. Completed Project Profit Margins at Four Major General Contractors Fig. 3: Trends for Avg. Completed Project Profit Margins at Four Major General Contractors
    Prepared from each company's financial data.

  • Fig. 4: Year-on-Year Changes in NSBPI and Price Indices (Corporate and Consumer) Fig. 4: Year-on-Year Changes in NSBPI and Price Indices (Corporate and Consumer)
    Compiled from Nikken Sekkei, the Bank of Japan's Corporate Goods Price Index, the Statistic Bureau of Japan's Consumer Price Index, and the Japan Center for Economic Research (JCER)'s Short-Term Economic Forecast. Forecasts are from JCER.

Quarter-on-quarter Growth Slows to Around 1%

Nikken Sekkei Standard Building Price Index NSBPI*1

Growth rates slowed for both construction and equipment installation work (Figures 5 and 6). While some types of work saw increases, the overall upward quarter-on-quarter momentum weakened due to falling costs for steel rebar and steel framework. Equipment installation work saw increases in some specialized work and equipment categories due to cost revisions. Labor costs and overhead rates remained flat quarter-on-quarter, however, indicating weakening upward pressure.

  • 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

Additional ready-mix concrete price hikes seen this year in Osaka, next year in Tokyo

Ready-mix concrete prices have remained flat (Fig. 7). However, in Osaka, where prices had been stable since mid-2023, the Osaka Wide Area Ready-Mix Concrete Cooperative announced it will raise concrete prices*3 by ¥8,500 to ¥34,000/m³ beginning in April 2026. Meanwhile, the Tokyo Area will maintain price levels for FY2026 but has announced a ¥3,000 increase to ¥28,000/m³ from April 2027, a situation that warrants continued attention.

Labor shortage concerns remain high

The construction industry employment outlook diffusion index (DI) peaked in June 2025 and has declined slightly since then. Yet, it remains higher than in other industries still experiencing severe labor shortages (Fig. 8).To resolve labor shortages, efforts to improve productivity and working environments, including boosting wages, are expected to continue.

  • Fig. 7: Ready-mixed concrete price trends Fig. 7: Ready-mixed concrete price trends
    Created from the Economic Research Association's Estimation Data.

  • Fig.8: Employment Outlook DI Trends (Large Firms) Fig. 8: Employment Outlook DI Trends (Large Firms)
    Created from the Bank of Japan's Short-Term Economic Survey of Enterprises (Tankan).

*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: The price of standard concrete with a nominal strength of 18.

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