Since the end of the pandemic, inflation has been a persistent issue globally, with Japan’s construction industry being no different.
In Japan specifically too, there is a significant labor shortage thanks to the nation’s declining population. Companies need to raise wages to allure remaining labor to work for them, further adding to inflationary pressures.
Below are three cases in recent Japanese media where inflation induced cost overruns have pushed back builds on large scale developments.
Nakano Sun Plaza Redevelopment Delayed Due to Rising Costs
On October 11th, the Nikkei Shimbun reported that the redevelopment of Tokyo’s Nakano Sun Plaza has been delayed after Nomura Real Estate along with other partners withdrew their approval application due to a ¥90 billion rise in projected construction costs.
CG Rendering of Nakano Sun Plaza original finished rendering, invalidated due to rising costs. Rendering courtesy of the developers.
The project, initially estimated at ¥263.9 billion, aimed to transform the site into a 262-meter skyscraper with commercial, residential, and office spaces, but construction will no longer begin in fiscal year 2024 as planned.
Nakano Ward disclosed the delay during a special assembly meeting on the 11th, noting that while the project’s concept remains, a new plan is required.
The ward is spending ¥28 million monthly on maintenance and property taxes for the unused buildings, with costs expected to increase due to the delay.
Some assembly members voiced frustration, calling for minimized financial burdens and suggesting a review of developer selection, as the project has faced repeated revisions.
The ward continues negotiations with developers, but a new timeline has yet to be confirmed.
Sapporo Station Redevelopment Delayed Due to Rising Costs
On October 16th, the Nikkei Shimbun also reported that JR Hokkaido President Yasuyuki Watanuki announced plans to potentially scale back the Sapporo Station redevelopment due to soaring material and labor costs.
The high-rise building’s opening, initially set for fiscal year 2028, could be delayed by up to two years, though the 2030 deadline remains unchanged for now.
CG rendering of finished project, courtesy of JR Hokkaido.
The project, a joint effort with the City of Sapporo, includes a 245-meter skyscraper with a hotel, offices, and commercial spaces. Marriott International’s luxury brand is expected to join, along with a new bus terminal.
Mr. Watanuki stressed the need to weigh the downsides of reducing the project’s scale, which could impact revenue. Costs, initially estimated at ¥250 billion, are now expected to increase. The company aims to finalize a revised plan by the end of the fiscal year.
Okayama City Redevelopment Project on Hold Indefinitely
In August this year, KSB Setonaikai Broadcasting, a local Japanese media company, reported on the indefinite delay of the Okayama City Banzancho 1st District Urban Redevelopment.
6 minute KBS news piece on the difficulties the redevelopment faces. Japanese only with summary of contents below in English.
Okayama City Key Takeaways:
The redevelopment project in Okayama City’s Banzancho area was approved in 2020, featuring an 18-story mixed-use building and a 6-story complex with childcare and office facilities.
The project, originally set to begin in 2022 and be completed this month, has been paused, with the site now temporarily used as a parking lot.
Delays were attributed to difficulties in securing labor and rising construction costs, exacerbated by preparations for the Osaka-Kansai Expo in April next year.
The redevelopment union reported that no contractors were willing to take on the project under current conditions, with cost estimates far exceeding pre-pandemic projections.
Despite three rounds of bidding since November 2021, no agreements were reached.
The union is now adjusting the plan, including increasing costs, with a goal of starting construction next fiscal year.
Five other redevelopment projects in Okayama City have also been affected by cost increases and timeline changes.
A representative from Japan’s Development Bank highlighted the broader national issue of construction cost inflation affecting redevelopment projects and warned of potential impacts on urban revitalization.
The rising costs are expected to drive up the price of condominium units, making them less affordable for residents.
Experts raised concerns that the delays and changes could diminish the vibrancy of the city center and affect long-term urban development goals.
Sources:
Nakano Sun Plaza Nikkei Shimbun Article (Japanese only; paywalled)
Sapporo Station Redevelopment Nikkei Shimbun Article (Japanese only; paywalled)
Okayama City Redevelopment KBS Setonaikai Broadcasting Article (Japanese only)
