Cost Management Report

「Business sentiment in the construction industry continues to be low
Noticeable intensifying of competition for orders」

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This report is prepared by Nikken Sekkei Cost Management Group, Quality Management Department for the purpose of providing information only. The contents are as of the date of creation and do not guarantee completeness and are subject to change without notice.

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Business sentiment in the construction industry continues to be low
Noticeable intensifying of competition for orders

Slow economic recovery

The pace of recovery from the economic downturn caused by the Covid disaster is slow, and real GDP is not expected to recover to the level of FY2019 until the latter half of FY2022 (Fig. 1). Of the GDP, private-sector capital investment in construction is expected to exceed the FY2019 level in the July-September period of 2022, however, private housing investment is expected to remain at a low level due to lack of resilience.

Business sentiment in the construction industry is expected to deteriorate

The Bank of Japan Tankan (December 2020 survey) business condition index of large manufacturing industry improved by 17 points from the previous September survey to ▲10, and the large non-manufacturing industry improved by 7 points to ▲5, improvement continuing from last June survey (Fig. 2). On the other hand, although the construction industry remains positive, the outlook has fallen by 11 points and pessimistic views on the future continue.
  • Fig.1 Historical change in Real GDP and forecast Fig.1 Historical change in Real GDP and forecast
    Source: Cabinet “Quarterly GDP”
    JCER “Short term economic forecast”

  • Fig.2 Historical change in Business Condition Judgement Fig.2 Historical change in Business Condition Judgement
    Source: BOJ “TANKAN”

Construction investment expected to decline

As a sign of low business sentiment in the construction industry, private housing investment and private non-residential construction investment (building) are all anticipated to decrease in FY2021 (Fig. 3). The severe order environment is expected to continue causing orders to level off.

Orders received at the lowest level in the last 5 years

Looking at current construction activities, domestic construction orders received by major construction companies in the first half of FY2020 are at the lowest level in the last five years (Fig. 4). Shimizu Corporation only achieved a slight increase compared to the same period of the previous year, but the amount is low. Contract timing has generally been postponed due to the influence of the Covid disaster, they say, and it is expected that orders for large projects will be received in the second half, but in order to secure the remaining 70% of orders to meet their initial target amount, bid competition is likely to intensify. In fact, comments such as "competition is fierce, especially for large-scale construction projects" are becoming more prominent in the financial statements of each company. Competition will be more fierce in 2021 which is highly likely to result in the continuing downward trend in construction prices.
  • Fig.3 Historical and forecast change in Private Non-residential investment Fig.3 Historical and forecast change in Private Non-residential investment

    Source: MLIT “Construction Investment Outlook”
    JRCE “Investment Forecast in Construction”

  • Fig.4 Breakdown of Client  Fig.4 Historical change in Order Value and Equity Ratio of 5 major construction companies
    Source: Financial Report
    ※Excludes Takenaka which has not announced their quarterly financial results and Haseko

The downward trend up to last term has stopped

NSBPI
Tokyo area

Building work has fallen slightly. Although some materials have risen, decline in labor costs continued from the previous term offsets and retains building service works unchanged.

NSBPI
Kansai area

The decline up to last year has stopped and leveled off.

NSBPI
Tokai area

Despite aggressive capital investment in some industries, the demand for office space is still weak and building supply is low. Prices have fallen in structural and finishing works.
  • Historical change in NSBPI Historical change in NSBPI

  • NSBPI increase / decrease rate and contribution of building /services NSBPI increase / decrease rate and contribution of building /services

Steel prices rise slightly
Fresh concrete price set to rise in the future

Steel prices have risen slightly. This is caused firstly by the price escalation of iron ore and scrap, which are raw materials for steel. Another cause is that the demand for steel products has bottomed out due to the recovery of the manufacturing industry and the inventory level has fallen. The price of fresh concrete has remained flat, but due to the rise in raw material prices and transportation costs, the fresh concrete association in the Tokyo area has announced that it will raise the price by 1000 yen/m3 (7%) from the contract in April 2021, and this escalation will spread to other areas.

Labor supply and demand is level

The shortage rate increased by 0.1 points in October 2020, however, as it has remained at a low level since April 2020, the labor supply and demand has remained level. Whereas, the increase in number of companies that forecast difficulty to secure labor in the next 3 to 4 months should be paid attention.
  • Historical change in ordinary steel price Historical change in ordinary steel price
    Source: CRI “Construction Material Price Index”

  • Historical change in price of fresh concrete Historical change in price of fresh concrete
    Source: CRI “Construction Material Price Index”

  • Historical changes in Supply of Skilled Labor Historical changes in Supply of Skilled Labor
    Source: MLTI “Construction Labor Supply and Demand” seasonally adjusted

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