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rise in construction costs since 2020

cost increase for super high rise towers

height of Tokyo’s tallest upcoming tower

net to gross efficiency

TRANSFORMATION

A skyline transformed in Tokyo

Tokyo’s skyline is undergoing a profound transformation, shaped by global economic shifts, evolving workstyles, and a growing focus on sustainability.

Over the past five years, Tokyo’s high-rise market has seen intensified competition among major developers. ESG-focused investment has surged, prompting projects to prioritise sustainability certifications and energy efficiency, while prolonged Yen depreciation has attracted foreign capital and luxury hotel brands.

At the same time, demand for mixed-use complexes – integrating offices, residences, retail, and cultural spaces – has grown as lifestyles evolve. This has fuelled a race for prime Grade A sites near Tokyo Station, Nihonbashi, and Toranomon, where developers compete not only in scale but in height and design innovation, reshaping the city’s skyline.

On the other hand, construction costs in major metropolitan areas such as Tokyo and Osaka have risen significantly in the last five years, as a returning real estate market has been met by a severely constrained supply chain suffering from prolonged skills shortages.

As a result, many projects have shifted toward refurbishment to control costs, leading to lower vacancy rates in rental office spaces.

TRENDS SHAPING THE HIGH-RISE MARKET

Changing demands of urban lifestyles

Developers are reflecting evolution in consumer demands, such as introducing more vertical garden concepts to high-rise buildings to bring nature and a sense of well-being into dense urban environments – such as the ‘vertical garden city’ at the Toranomon Hills towers.

Increasingly, residential development is also being combined with office and commercial spaces around major transport hubs to create more cohesive complexes with convenient access and amenities for residents and workers. Tokyo Midtown Yaesu’s 240 m mixed-use tower is directly connected to Tokyo Station, and the nearby TOKYO TORCH – a 385 m mega-tall tower – also integrates offices, luxury hotel, residences, retail, and an observation deck into a single structure.

Low-carbon and sustainable design

Buildings in Tokyo are increasingly adopting Zero Energy Building (ZEB) certification, utilising mass timber construction and CLT (Cross-Laminated Timber), and incorporating passivhaus principles to reduce environmental impact. Examples include the Akasaka Intercity AIR, an award-winning, ZEB-certified mixed-use complex in Akasaka/Toranomon, featuring energy-efficient façades that support natural ventilation.

Global appeal and experiential value

Since the COVID-19 pandemic, construction costs in Japan’s major metropolitan areas have risen by 30–40 percent. However, currency depreciation has meant that foreign investment has remained resilient – drawn to projects with a global appeal where higher returns can be achieved, such as luxury hotels like the Bulgari in midtown or the Waldorf Astoria in Nihonbashi.

Other world-class cultural facilities, and tourism-oriented spaces also remain in demand as part of a drive to enhance Tokyo’s role as an international destination.

Supply chain competition across sectors

Due to developments such as Osaka IR, semiconductor factories in Hokkaido and Kyushu, and nationwide-level construction projects commissioned by the Ministry of Defence, many major general contractors in Japan have concentrated their resources on these projects, which offer scale and long-term revenues.

As a result, Tokyo’s high-rise market faces rising construction costs, extended project timelines, and increased reliance on mid-tier contractors for local projects. In addition, the demand for skilled labour and specialised equipment has surged nationwide, creating tight competition for resources, including materials such as steel and concrete. These combined factors have led to significant supply chain constraints, pushing prices upward and adding complexity to scheduling across multiple urban redevelopment schemes.

Procurement challenges

In Japan, procurement options depend on the size of the project, with varying cost impacts:

Mid-rise buildings: small and medium-sized construction companies can handle these, so there is a competitive cost environment. Projects of this size are increasing, especially in regional cities, to suit supply chain capabilities and appetites.
High-rise buildings (approximately 60m to 100m in height): construction companies acting as main contractors can be less willing to take on these projects than mid-rise buildings due to increased risk and the need to manage sub-contractors. Contractors will select projects carefully, and are more willing to take on flagship, head office projects, with the associated cost premium.
Skyscrapers (100m+): The pool of capable construction companies reduces at this height, making it important to solicit participation well in advance of procurement.

TOKYO

Projects shaping the skyline

W350

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Torch Tower

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Roppongi-5 Project

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Nihonbashi-1 Project

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LANDSCAPE

Construction cost landscape

The cost of shell and core construction for towers in Tokyo has risen significantly since the 2020 Covid-19 outbreak. While inflation may seem like the obvious culprit, the reasons are more nuanced, such as geopolitical risks, supply chains and fluctuating currencies.

Since 2020, costs have risen by nearly 35%, and for super high-rise buildings, this increase is estimated to be even more pronounced at circa 50%.

50%

Increase in construction costs for high-rise buildings since 2020.

	Office
2020	JPY 0.73m – 0.87m/m²
2025	JPY 1.1m – 1.3m/m²

While cost is a key factor in assessing viability, net internal area is equally important. The net-to-gross efficiency of office towers typically ranges from 70-80 percent, influenced by various design and structural considerations.

BENCHMARK

Tokyo’s 2025 key cost and efficiency ranges by sector

	Offices (20-60 storeys)*	Hotel (20-60 storeys)**
GIA	JJPY 1.1m – 1.3m/m² Over 60 floors: JPY 1.13m – 1.4m/m²	JPY 1.65m – 1.81m/m² Over 60 floors: JPY 1.81m – 1.89/m²
GIA	JPY 105k – 120k/ft² Over 60 floors: JPY 105km – 130k/ft²	JPY 153k – 168/ft² Over 60 floors: JPY 168k – 175k/ft²
% net-to-gross internal area efficiency	70-80%	-

*Costs exclude finishes, demolition, external works and utilities.

** The hotel rate includes the direct construction costs by a general contractor. Soft goods, IT/AV, FF&E, and OSE are not included. The range should be adjusted to reflect differences in hotel brands and should not be limited to the provided range.

FUTURE OUTLOOK

Strategic pivot to renovation

With redevelopment costs soaring due to land scarcity, rising construction expenses, and prolonged timelines, Tokyo’s real estate market is witnessing a growing trend toward high-rise refurbishment.

Investors increasingly view properties with shorter design and construction periods - and potential for multi-use conversion - as valuable assets. Delivery schedules can shrink from years to mere months. This strategic pivot revitalises existing assets, offering faster, more cost-effective investment opportunities and breathing new life into Tokyo’s property investment market.

New vs. renew – the carbon factor

The decision between new-build and refurbishment should be rigorously assessed. In many cases, renewal can offer significant cost and carbon saving advantages and should be tested against the business case. Tools such as CASBEE, JIA-LCA, MLIT Guidelines, One Click LCA, and EC3 are used to calculate the embodied carbon cost impact on building design, material selection, and procurement strategies.

Shift towards balanced risk models

The competition for supply chain partners, volatility in material prices, labour shortages, and logistics uncertainties are prompting prime contractors to incorporate higher risk premiums into their bids. Subcontractors, in turn, are mitigating exposure through index-linked procurement strategies and shorter quote validity periods. These dynamics are driving up prime bid prices and accelerating the adoption of collaborative risk-sharing models — such as Guaranteed Maximum Price (GMP), target cost contracts, and CM-at-risk, with the aim of stabilising delivery schedules and maintain budget certainty.

Demand for resilient, sustainable, premium space

Strong demand for Grade A office space in central Tokyo continues to push the skyline higher. Leading developers are driving large-scale redevelopment as part of urban revitalisation efforts.

As an island nation prone to earthquakes, Japan is increasingly prioritising resiliency and sustainability measures, including business continuity planning (BCP) and energy efficiency, to meet the expectations of both domestic and international tenants. These enhancements are expected to support rental growth and attract new investment opportunities.