Market Overview

The eight major construction segments (residential, offices, retail, hospitality, industrial, logistics, education, and healthcare) for FY2023 increased to 24,298,900 million yen, based on the planned construction costs (representing 104.8% of the previous fiscal year).
Driven by the resumption of construction projects that were delayed during the COVID-19 crisis alongside a recovery of overall construction demand, the market for eight major construction segments showed an upward trend. Growth is fueled particularly by strong demand in logistics and industrial segments.
However, construction cost has been soaring from around 2021 due to the increase in material price and labor expenses. To manage the rise in cost, contractors reduced the planned floor sizes of buildings, or postponed/canceled the projects.

Noteworthy Topics

Adapting to Surging Construction Costs

Construction costs have been surging since around 2021, due to soaring labor expenses and material prices. The increase in labor cost is largely due to supply-demand imbalance in the construction workforce. This issue stems from a decline in the number of jobseekers in the industry, leading to an aging workforce and a shrinking overall labor pool. Meanwhile, the rise in material costs is primarily attributes to what's been dubbed as the 'Wood Shock' *1 and 'Iron Shock.'*2



*1 ‘Wood Shock’ refers to a global surge in lumber prices, driven by a spike in new housing construction following the pandemic, particularly in China and the U.S. This surge caused a sharp increase in lumber price.
*2 ‘Iron Shock’ describes the rise in iron and steel prices, fueled by a rapid global increase in demand for these markets in the wake of the COVID-19 crisis.

Future Outlook

The market size for eight major construction segments (residential, offices, retail, hospitality, industrial, logistics, education, and healthcare) for FY2024 based on the planned construction cost is expected to expand to 24,561,800 million yen (representing 101.1% of the preceding fiscal year) due to higher construction expenses associated with rising commodity prices.

On the supply side, strong demand persists for large-scale renovations of office buildings and commercial facilities in central Tokyo, as well as for warehouses and semiconductor foundries, supporting steady growth in these segments.
In contrast, overall demand is expected to decline due to population shrinkage, downsizing of buildings driven by rising construction costs, and delays in project starts caused by those same cost pressures. As a result, the combined market size of the eight major construction segments is projected to fall to 22,488,900 million yen by FY2030 (92.6% of that of FY2023 level).

Research Outline