Headwinds in Tokyo's High-Rise Building Market, Construction Costs Rise by up to 50% in the Past Five Years

Global professional services company Turner & Townsend (Headquarters: West Yorkshire, UK, CEO: Vincent Clancy) today released its latest "Global Tall Buildings report," which provides unique insights into the high-rise building markets of six cities around the world. Based on proprietary data, the report analyzes the challenges and opportunities facing developers of super-tall buildings in London, New York, Seoul, Tokyo, Mumbai, and Dubai. It includes not only construction costs but also the impact of design and height on project feasibility.

According to the report, the cost of constructing new office buildings in Tokyo has risen by as much as 50% since 2020, marking the highest rate of increase among the cities analyzed. Currently, the cost to build a skyscraper in Tokyo is more than three times that of Seoul and ten times that of Mumbai. This significant cost increase is due to a variety of factors, including not only inflation but also conflicts, geopolitical risks, supply chain constraints, and currency fluctuations.

The most crucial point is that the "shape" of a skyscraper affects construction costs as much as its "height." In some cities, there can be a 25% price difference between the most ambitious and the most cost-effective projects, making the building's volume (massing) a critical determining factor.

Over the past five years, the Tokyo high-rise market has seen intense competition among major developers, a surge in ESG investment, and a prioritization of sustainability certifications and energy efficiency. Furthermore, with foreign investment remaining strong due to the prolonged depreciation of the yen, luxury hotel projects with high return potential and global appeal, such as the Bulgari Hotel in Tokyo Midtown and the Waldorf Astoria in Nihonbashi, are attracting attention. At the same time, lifestyle changes have increased demand for mixed-use developments that integrate office, residential, commercial, and cultural spaces. This has intensified competition for prime Grade A land around Tokyo Station, Nihonbashi, and Toranomon, with developers competing not just in scale, but also in height and design innovation, to change the city's skyline.

However, large-scale projects are underway, such as the integrated resort (IR) in Osaka, semiconductor factories in Hokkaido and Kyushu, and nationwide construction projects ordered by the Ministry of Defense. As many of the country's major general contractors focus on these large, long-term profitable developments, the supply chain for high-rise buildings is being squeezed. This has resulted in further increases in construction costs, longer project durations, and a greater reliance on mid-sized general contractors for regional projects.

Particularly for buildings over 100 meters tall, the number of capable construction companies in Japan is limited, making it essential to secure their participation from a very early stage of procurement. As a result, there is also growing attention on renovating existing buildings to control costs, which is leading to a decrease in vacancy rates for rental office space.

Turner & Townsend is an industry leader in providing project management, cost management, and program advisory services. The company has supported the construction of over 200 high-rise buildings worldwide, including 22 Bishopsgate in London, 30 Hudson Yards in New York, The Jewel in Australia, and Piramal Aranya in Mumbai.

Steve Watts, Head of Tall Buildings at Turner & Townsend, stated:

"Globally, the demand for tall buildings remains very high, and Tokyo is no exception. In particular, the demand for Grade A office space in the city center is pushing the skyline even higher. With rising construction costs, continued inflation, and a tight supply chain adding further pressure, project profitability is an urgent issue. In many markets, including Tokyo, there is a demand to 'do more with less.' There is also a growing trend of developers favoring renovation over new construction in search of quicker returns, cost efficiency, and sustainable value creation.

It is more important than ever to recognize that shape is as important as height in making a project cost-effective..."