Cost Management Report

July-September 2026 issue.
「Construction Costs Soar Higher on Middle East Tensions」

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The “Cost Management Report” (quarterly) provides an overview of domestic and international economic conditions and, drawing on a wealth of cost data derived from our track record as the leading architectural firm in market share, delivers timely, independent analyses of the construction market from a neutral perspective.

*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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Major general contractors’ profit margins on completed projects exceed initial forecasts

Profit Margins on Completed Projects for Major General Contractors in Fiscal Year 2025 (4 companies*)1Profit margins on completed projects for major general contractors (an average of four companies*1) in fiscal 2025 came to 12%, significantly exceeding initial forecasts for the period (Fig. 1). Regarding the initial forecast for fiscal 2026, comments suggest that, as in the past, it will be difficult to improve profitability at the time of order acceptance, and that margins are expected to be at a level similar to that of fiscal 2025. Furthermore, regarding the impact of the situation in the Middle East, while all companies consider the immediate impact to be limited, they are expressing concerns about the future*2. 2。

Profit margins on completed projects continue to rise for equipment subcontractors

Profit margins on completed projects for major subcontractors (an average of five electrical*)3, and seven machinery*4companies) had fluctuated between 13-15% from 2015 to 2023 but continued to rise in 2024 and 2025 (Figs. 2 and 3). This reflects a strong order intake for data centers, production facilities, and other projects.

Figs. 1-3 Trends in Profit Margins on Completed Projects

Fig. 1: Avg. of 4 Major General Contractors
Prepared from each company's financial data.
Fig. 2: Avg. of 5 Major Electrical Subcontractors
Prepared from each company's financial data.
Fig. 3: Avg. of 7 Major Machinery Subcontractors
Prepared from each company's financial data.

Middle East tensions surface in construction prices

Due to the deterioration of the situation in the Middle East, crude oil prices surged in March, reaching a monthly average of $99/barrel in May. Coupled with supply constraints on crude oil, the Corporate Goods Price Index also rose sharply, particularly for petroleum, coal, and chemical products (Figs. 4 and 5).Manufacturers have revised their catalog and transaction prices, and these adjustments are reflected in the most recent bid prices.

Despite some situational easing, estimated price impacts remain uncertain

While it is possible that quotes incorporating the risks of rising materials prices and extended construction periods will continue to be presented, these risks are expected to diminish as signs of stability emerge in the Middle East. On the other hand, given that differences in material supply conditions persist even at present, depending on factors such as company size, and that the risk remains of sudden changes, close monitoring of the impact on price quotes remains necessary.

Fig. 4: Trends in Crude Oil Prices and the Corporate Price Index
The World Bank’s Commodity Prices and the Bank of Japan’s Corporate Goods Price Index.
Fig. 5: Rate of Increase in the Corporate Price Index Before and After the Middle East Situation Deterioration
Compiled from the Bank of Japan’s Corporate Goods Price Index. Comparison of the latest figure (May 2026) with February 2026.

Construction Prices Return to the 2% Level vs. the Previous Quarter

Nikken Sekkei Standard Building Price Index NSBPI＊5

In the construction sector, prices rose across steel, concrete, and other categories -- in addition to impacts of Middle East tensions -- resulting in a higher rate of increase compared to the previous quarter.
For equipment installation work, the rate of increase expanded significantly compared to the previous quarter due to Middle East impacts, price revisions by equipment manufacturers, rising materials costs (such as electrical copper) in estimates, and increases in labor costs and overhead rates.
As a result, the quarter-on-quarter change in the composite index returned to the 2% level for the first time in three quarters (Figs. 6 and 7).

Fig. 6: Change in NSBPI
Fig. 7: Percent Change in NSBPI & Building Work, MEP Work Contributions

Ready-mix concrete prices rise in Osaka; Tokyo to raise prices next year

The Osaka Metropolitan Ready-Mix Concrete Cooperative’s 30% increase in ready-mix concrete list prices, effective this past April, has permeated the market, pushing up market prices for ready-mix concrete in Osaka (Fig. 8). Similar price increases have been implemented or are planned in the Osaka suburbs. With the Tokyo region having announced a 12% increase in list prices effective April 2027, continued vigilance regarding rising market prices is necessary.

Perceived labor shortages remain high compared to other industries

The DI for employment outlook in the construction industry has continued to trend upward since 2021 (Fig. 9).While other industries facing severe labor shortages are showing signs of a pause in the upward trend in this regard, the construction industry’s performance stands out. Along with improvements in productivity, efforts to secure workers are expected to expand further into the future.

Fig. 8: Trends in Ready-Mix Concrete Prices
Compiled from the Economic Research Association’s Cost Estimation Data.
Fig. 9: Trends in the Employment Outlook DI (Large Firms)
Created from the Bank of Japan's Short-Term Economic Survey of Enterprises (Tankan).

*1：Four companies: Obayashi Corporation, Kajima Corporation, Shimizu Corporation, and Taisei Corporation.
*2: Based on each company's financial statements for the fiscal year ending March 2026.
*3: Five companies: Kandenko, Kinden, Kraftia, Toenec, and Yurtec.
*4: Seven companies: Asahi Kogyosha, Sanki Engineering, Shin Nippon Air Technologies, Shinryo, Taikisha, Dai-dan, and Takasago Thermal Engineering.
*5：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.
*This report is based on information as of noon on June 30, 2026.