Market 1

Construction Outlook in JapanAug 2024

This report is the summary of SFC’s research covering the Japanese construction market. It
provides the historical and forecasting construction industry value with details of the market
condition and the construction categories in Japan.

Table of Contents
1.

Construction Investment ............................................................................................ 2
1.1

Transition of Construction Investment ................................................................. 2

1.2

Construction Investment Breakdown .................................................................. 32.

Construction Demand（Construction Start floor area） ............................................. 43.

Construction Demand and Number of Construction Workers ..................................... 54.

Construction Price ..................................................................................................... 6

Sato Facilities Consultants, Inc.

Page - 1

Market 1

1.

Construction Investment
1.1

Transition of Construction Investment

After peaking at 84 trillion yen in FY1992, construction investment has continued
to decline, and in FY2010 it fell to about 50% of its peak. Since then, it has beenon an upward trend due to reconstruction demand following the Great East Japan
Earthquake and a recovery in private sector investment. Construction investmentin FY2023 is expected to increase by about 2.2% from the previous year to 70.3
trillion yen, and the investment in building construction is expected to be 45.0
trillion yen.

Sato Facilities Consultants, Inc.

Page - 2

Market 1

1.2

Construction Investment Breakdown

Construction Investment Breakdown

Public Civil
Engineering
27.0%
PublicArchitecture
9.1%

PrivateArchitecture
52.7%

Private Civil
Engineering
11.3%

Source: MLIT "Construction Investment
Outlook"
Looking at the composition of construction investment, private investment accounts forabout 64.0% of the total, and public sector accounts for about 36.0%. By type ofconstruction, architecture accounted for about 61.8% and civil engineering for about38.2%. As the result shows, most of the private investment is in construction works, andmost of the public investment is in civil engineering works in Japan.

Sato Facilities Consultants, Inc.

Page - 3

Market 12.

Construction Demand（Construction Start floor area）

New construction floor area fell sharply in FY2007 due to the impact of the revision of theBuilding Standards Law, and in FY2009 due to the global recession following the 2008
financial crisis. Although it started to increase from FY2010 onwards, it fell for the first time infive years in FY2014 due to the reaction to the last-minute surge in demand before theconsumption tax rate hike in the previous year. Although it remained at the same level
thereafter, in fiscal 2020, residential buildings decreased for the second consecutive year
and non-residential buildings decreased for the third consecutive year, which means new
construction floor area fell sharply to 114 million square meters, down 10.8% for all buildings.
In fiscal 2021, it will increase by 7.5% to 122 million square meters, but it has not reachedthe level of 2019 before the corona crisis. Furthermore, since 2021, the decline in demandhas continued, with 119 million square meters in 2022 and 108 million square meters in 2023.
In 2023, the demand was even lower than the drop experienced in 2009.

Sato Facilities Consultants, Inc.

Page - 4

Market 13.

Construction Demand and Number of Construction Workers

Over the past decade, construction demand, measured by building floor area started,peaked in 2017 and has been declining since. The impact of the COVID-19 pandemic in
2020 led to a significant 10.8% drop in demand. However, 2021 saw a rebound due toeconomic recovery, with increases in residential demand and the need for logistics
warehouses, offices, and factories, resulting in a 7.5% year-over-year growth in overall
construction demand.

From 2022 to 2023, demand for office spaces declined significantly for two consecutive
years, and retail space demand also decreased. The demand for logistics warehouses
peaked and began to fall in 2023, leading to an overall decline in construction demandduring these two years. Moving forward, construction demand, largely driven by residential
demand, which constitutes about 60% of the total, is expected to continue its downward
trend through 2026. Nevertheless, large-scale projects in urban areas, particularly thoseawarded to major general contractors, are expected to maintain steady demand.

On the supply side, the number of construction workers has been gradually decreasing,and this trend is likely to persist. The labor shortage is expected to intensify due to theretirement of experienced workers and the implementation of work-hour limits as part ofwork style reforms in FY2024.
Sato Facilities Consultants, Inc.

Page - 5

Market 14.

Construction Price

Construction cost in Japan keeps on rising continuously after recovery of the global financial
crisis occurred in 2008. Fundamentally this has been caused by a shortage of construction
workers nationwide, which is a direct result of an existing aging problem and a lack ofinterest by incoming workers. In recent years, work style reforms initiated by the governmentis accelerating this condition.
Some people assumed the volume of construction investment would reduce after thecompletion of the projects related to the Olympic games in 2019. However, the problem oflabor shortage has not been resolved and is becoming more serious, and as a result, it
seems that construction prices will continue to rise for a while.
The construction industry had been extremely strong until 2019, however, since Covid-19
occurred February in 2020, the economic situation was suddenly changed remarkably. And
as economic activity reduced greatly, capital outlay for investment for Building decreased
drastically in 2020.
From 2022, the recovery of demand from the pandemic combined with Russia's invasion ofUkraine has accelerated the rise in energy costs and raw material prices. In addition, theprice of materials procured from overseas is soaring due to the impact of the weak yen.
Construction prices are expected to continue to rise due to rising material costs.
The graph shows the trend of the average construction cost per unit floor area of all types ofbuildings across Japan. The price has been increasing annually, particularly from 2014 to2017, during which a significant increase was observed. Even after that, there was a rise indemand for building construction due to active redevelopment, particularly leading up to theOlympics.
Since 2020, there was a significant drop in demand due to the impact of the COVID-19
pandemic. However, from 2021, there has been a sharp rise in the cost of building materials.
In 2023, building demand grew significantly after the pandemic. Due to the high cost ofbuilding materials and rising labor costs from labor shortages, prices increased sharply, witha 14.7% rise compared to the previous year.

Sato Facilities Consultants, Inc.

Page - 6

Market 1

Sato Facilities Consultants, Inc.

Page - 7