Balancing tradition and modernisation: the way forward for Japan’s construction industry
Japan has re-entered the global spotlight as one of the most expensive construction markets, with five cities in the world’s top 15. Amid cost pressures, labour shortages and supply chain volatility, the industry must balance its traditional strengths with modern delivery models to remain globally competitive and resilient.
Our latest Global construction market intelligence report reveals that Tokyo returns is one of the top 10 most expensive cities for construction, with an average cost of US$4,467 per m2.
Four other Japanese cities, Sapporo, Osaka, Hiroshima and Fukuoka, also rank in the global top 15, positioning Japan as the third most expensive country for construction worldwide, at an average construction cost of US$4,466 per m2. This reflects the country’s continued investment in high-quality builds, and demand that’s outpacing supply across sectors.
Despite rising construction costs, labour shortages and complex delivery conditions, Japan continues to offer a great value for money. Its construction industry remains a global benchmark for quality, reliability and long-term value, and its reputation of delivering dependable, high-quality outcomes in a volatile and competitive landscape remains unmatched.
To unlock Japan’s full potential, the industry must adapt to cost and capacity pressures. It should also speed up the transition to modern data delivery models.
Signs of strain: familiar challenges in H1
The first half of the year brought modest growth, marked by the completion of major projects, such as the Osaka Expo 2025. Yet, persistent challenges continue to impact the industry. This includes skilled labour shortages, driven by an aging population and slow influx of younger workers. Knowledge transfer is slow, making workforce innovation and investment in training a key focus.
Capacity limits are clear. Project demand is higher than the supply of skilled professionals and contractors, creating delays that impact timelines. Compounding the issue is construction cost inflation, forecasted at 5.6 percent for 2025, driving up material costs and contractor fees. In response, developers are adopting smarter planning and procurement strategies to maintain delivery certainty and avoid delays.
There's also a gradual shift towards value engineering and early-stage contractor engagement to manage budgets more effectively. Despite these challenges, Japan remains resilient. As a well-established market, it continues to steadily expand, with growth fuelled by the rapid expansion of data centres, high‑tech industries and renewed momentum in leisure and hospitality.
Progress under pressure
While Japan’s construction industry demonstrates resilience, with a more optimistic market outlook in H2, construction cost inflation is being affected by external pressures.
Yen depreciation, logistics disruptions and the uncertainty surrounding US tariffs on Japanese goods have increased price volatility. For example, on imported materials such as steel and aluminium. However, while disruptive, global trade uncertainty is also creating new opportunities.
Our Global construction market intelligence report highlights an increased trend of companies looking to reduce their exposure to tariffs and global supply chain risks by nearshoring the procurement of materials.
Stakeholders that act early to diversify supply chains and secure local procurement will be better placed to navigate volatility and maintain project certainty.
Japan’s ongoing demographic decline adds on to these pressures, threatening on-site productivity and the transfer of vital industry knowledge. Our data highlights that while general labour in Japan remains in balance, there are shortages in skilled trades.
This is particularly among mechanical, electrical and plumbing (MEP) specialists, structural trades, such as carpenters and steel fixers and site foremen. Without faster upskilling, these shortages could delay projects and further cost escalation.
Balancing tradition with modern methods
The industry is at a pivotal moment. Analogue processes and experience-based project management, once reliable, are now becoming less effective in a global market defined by rapid change and unpredictable supply chains. Rising cost pressures, tighter delivery timelines and shifting collaboration models are accelerating the push towards digitalisation.
Tools such as building information modelling (BIM), construction information modelling (CIM) and live progress-tracking platforms are starting to transform the way projects are delivered.
This is improving transparency, anticipating delays and strengthening stakeholder coordination.
To unlock its potential, the sector must accelerate training and ensure digital tools are seamlessly integrated into project workflows. Upskilling must prioritise expertise in digital platforms, project controls and sustainable construction practices.
Experience from other markets shows that early adoption of technology can unlock significant productivity, even where labour is limited.
Embedding resilience through smarter delivery
Successful project delivery increasingly depends on real-time cost tracking, early procurement and risk-based decision-making. Teams that integrate live project data into planning won’t only better anticipate risks but also secure long-lead time materials earlier and adapt quickly to price fluctuations. These capabilities are critical for delivering projects on time and on budget.
Meanwhile, collaboration models are changing. The shift from trust-based relationships to more rigid contractual structures has introduced new communication and coordination challenges.
Successful project teams are overcoming this by sharing data and promoting shared accountability among stakeholders to ensure quality and efficiency.
Managing financial visibility has also become more essential. Through early-stage budget planning, real-time cost tracking and value engineering, project teams can identify cost pressures and propose mitigation strategies before they escalate. These tools are particularly important with increased cost inflation and global supply chains vulnerable to shocks.
Riding on reputation: turning challenge into opportunity
Japan is in a good position to gain more from Asia's shifting investment scene. The region's fastest growing construction sectors align closely with Japan's technical strengths.
While emerging markets such as Vietnam, Malaysia and India remain competitive with lower costs, Japan’s reputation for reliability, safety and technical expertise makes it an attractive choice for complex, high-value projects where quality and certainty are key. That reputation remains an advantage as stakeholders across Asia reassess where to invest amid global uncertainty.
To maintain its competitive edge, Japan must accelerate its transition to modern, data-led delivery models while continuing to uphold its world-class quality standards. The industry must act early and embed digital tools into every delivery stage, securing diversified and resilient supply chains and investing in workforce capability.
This transformation can’t be driven by technology alone. It requires professionals across the industry to reimagine their roles and responsibilities, especially those at the intersection of cost, quality and project delivery. Embracing digital transformation at every level of the industry is critical to the future success of Japan’s construction industry.