Cost Management Report

「Construction Prices Escalate Further On Strong Orders Due to Strong Orders and Continuing Materials Price Increases」

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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. The information in this report is current as of the date of publication. Its completeness is not guaranteed, however. The contents are subject to change without notice. Unauthorized reproduction of this report is prohibited.

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Construction Prices Escalate Further On Strong Orders
Due to Strong Orders and Continuing Materials Price Increases

Orders received are steady

Total orders received by the 50 major construction contractors from April to November 2022 was the largest in 16 years, indicating bullish conditions (Fig. 1). MEP work subcontractors were particularly busy, and there were moves to curb receiving new orders due to labor shortages. The supply-demand gap is leading to higher construction prices.

Price gap narrows between price-competitive projects and special orders

The bullish order environment is making it difficult for price competition to take effect.
The average deviation rate (*1) for price-competitive projects remained at minus 9-10% in 2020 and 2021, but turned positive in 2022 (Fig. 2). As a result, price polarization with special order projects that had continued until last year is dissipating, indicating that price competition is becoming less likely going forward.

＊1: Average deviation rate: Indicates how much the estimated price deviates from (or deviates below) the target price, averaged over all projects for each year.

  • Fig. 1: Trends in Construction Orders Received by the 50 Largest Firms Fig. 1: Trends in Construction Orders Received by the 50 Largest Firms

    Source: Ministry of Land, Infrastructure, Transport and Tourism's "Current Survey of Orders Received for Construction Work” (survey of 50 Major Construction Contractors).

  • Fig. 2: Average Divergence Rate Between Price-competitive Projects and Special-Order Projects Fig. 2: Average Divergence Rate Between Price-competitive Projects and Special-Order Projects
    Source: Nikken Sekkei Ltd

Materials prices continue to rise

Prices continue to rise for a wide range of items, including metals, glass, and ready-mixed concrete, due to rising raw materials prices, labor costs, and exchange rate fluctuations (Fig. 3). While Tokyo Steel's announced selling prices for steel products have remained flat, the unit cost estimates quoted by builders continue to rise, requiring close monitoring in the future.

Output and input prices both rise, but divergence widens

The Diffusion Index (DI) for input price judgments (construction, large enterprises) in the Bank of Japan's (“Tankan”) short-term survey, which has been rising since June 2020, is still high at 68%, although it has recently declined slightly. Since March 2021, the output price DI has also continued to rise, but the degree of increase is smaller than that of the input price DI, suggesting that input price hikes have not necessarily been reflected in the form of higher output prices (Fig. 4).
Construction prices are likely to continue rising if conditions such as supply-demand gap tightening, and a spread of inflation sentiment continue to facilitate the transfer of cost price increases to construction costs.

  • Fig 3. Changes in Corporate Goods Price Index Fig 3. Changes in Corporate Goods Price Index
    Source: Bank of Japan's "Corporate Goods Price Index”.

  • Fig. 4: DI for Output Price/Input Price Judgment (Construction, Large Enterprises) Fig. 4: DI for Output Price/Input Price Judgment (Construction, Large Enterprises)
    Source: Bank of Japan's "Short-term Economic Survey of Enterprises in Japan“ (“Tankan”).

Building & MEP Work Prices are Both Trending Upward

Nikken Sekkei Standard Building Price Index (NSBPI)

The composite index rose about 7% from the prior period and 20% on-year. Prices rose in various categories for both building work and MEP work. In particular, upward pressure is increasing for MEP work and steel work, where procurement has been difficult of late.
Cost pass-throughs are likely to continue for work types that are under strong upward pricing pressure, as construction contractors have a large number of projects on hand and orders are also strong.

  • Fig. 5: Changes in NSBPI Fig. 5: Changes in NSBPI

  • Fig. 6: Percent Change in NSBPI and Contribution of Building Work and MEP Work Fig. 6: Percent Change in NSBPI and Contribution of Building Work and MEP Work

Ready-mixed concrete prices rise

Each regional ready-mixed concrete cooperative has announced price revisions from around April 2023 (the start of the new fiscal year), with the Tokyo Regional Ready-mixed Concrete Cooperative announcing a hike of 2,000 yen per cubic meter. The main reasons for price hikes are higher fuel coal, aggregate, and transportation costs. Combined with the rise in steel prices, this puts more upward pressure on building structural work prices.

Sense of labor shortage remains at a high level

The labor excess/shortage rate for December 2022 was 0.9%, falling under 1.0% for the first time since December 2021. Nevertheless, it remains at a high level (Fig. 8). Although there are no significant trends by job type or region, there are no signs of improvement in the supply-demand balance.

  • Fig. 7: Shift in Ready-mixed Concrete Prices Fig. 7: Shift in Ready-mixed Concrete Prices
    Source: Economic Research Association, “Cost Estimation Data”.

  • Fig. 8: Changes in Construction Skilled Worker Excess/Shortage Ratio Fig. 8: Changes in Construction Skilled Worker Excess/Shortage Ratio
    Source: Ministry of Land, Infrastructure, Transport and Tourism, "Survey on Supply and Demand of Construction Labor" (eight job categories, nationwide, seasonally adjusted)

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