Summary

The market for Commercial Construction in Japan is estimated to be valued at more than USD XX billion and is estimated to grow at a CAGR of more than 6.7% during the forecast period.

The market seems to be striving to come out of the recession, depicting growth due to large amounts of investments coming in as part of the project pipeline pertaining to Olympics 2020. Japan showed a fall in the rank to 5th, in the Global Competitiveness Report, including infrastructure, amid low economic outlay in 2019. Ever since Japan faced the turmoil of Great East Japan Earthquake, leading to the shutdown of the Nuclear plants and economic losses worth Billions of USD, sustainable construction is major market trend, in all the segments including commercial construction. Policy supports by the Govt for Zero Energy Buildings, anticipating complete zero Energy construction by 2030, Continuous Emissions Monitoring Systems, Facilities and Equipment Maintenance Systems, Building Energy Management and Maintenance Systems, Home Energy Management Systems, Automation and Monitoring Systems has resulted in a great opportunity for the domestic as well as foreign technology and construction players to change the Market dynamics and share in the Gene-Cons dominated market.

With forecasts getting revised and much lower growth anticipated because of the Pandemic, commercial space sector also shows not much sign of growth, though the space absorption stands tight due to the decrease in supply being proportional to decrease in demand. In the central Capital region, coworking spaces seem to have a bright post COVID era and elsewhere, office space seems to be rising, with companies opting remote working and satellite office as a trend in the future. Sincere Government efforts to attract investments, is expected to prevent further downscaling of the industry in the forecast period besides further inflow of funds in commercial space sector due to the planned mega event, Olympics, and consequent increment in tourism in July-Aug 2021.

Key Market Trends

Boost in infrastructure spending due to Tokyo Olympics 2020. Pandemic clouds risk on returns.

Besides, monetary easing, fiscal stimulus, and structural reforms, Olympics 2020 has long been considered as the fourth arrow of Shinzo Abe’s economics, in try to bring Japan out of long-term deflation and economic decline. Olympics preparations have resulted in an increase in infrastructure spending besides an expected increase in tourism, during the scheduled period of the games (July-Aug 2021), and hence increase in tourism commercial infrastructure. Investments in building and refurbishment of stadiums, sports commercial construction projects including National Olympic Stadium, athletes’ villages, hotels, health institutional infrastructure, redevelopment of Toyosu & Tsukiji, Nihonbhashi & Ginza, Shinagawa & Tamachi, Shunjuku, Shibuya & Ikebukuro, waterfront casino and retail besides transport developments, have amounted to approximately 9.3 Billion USD, in a total of 340 projects, for the Olympics and Paralympics. But again, the effects have been estimated to be short lasting for Japan’s economy, given the fact that such investments affect the developing economies much more as compared to the developed nations.

The initially planned event date between July-Aug 2020, has been postponed by the committee, over the increased fear due to the spread of the pandemic, novel COVID-19. This is expected to be a blow in the short term to the economic outlay of the country, given the huge amount of investment done by the state of Tokyo, centre as well as private sponsors including giants like Toyota, Bridgestone and Panasonic. Besides the decrease in tourism infrastructure due to the diplomatic spat with South Korea, which made up most of the tourism, just after China, this delay is expected to be another blow to the spending in the short term. Latest developments include the turning down of emergency, by Japan, due to the Pandemic, which is being seen as a positive sign, though risk still sustains. Hence, the government efforts to promote the country's tourism sector will support construction activity in the commercial construction market over the forecast period.

Commercial Space market facing ups and downs amid Pandemic

Office rentals are on a growing run, despite struggling market due to COIVD-19. Vacancy rates remained low, though the increasing focus on working remotely could result in increase in office vacancy over a longer span. Despite lifting of emergency due to COVID-19, office vacancy could increase due to trend becoming work from home. Late 2020 might start showing the consequences of the slowdown with half a year devoted to relocation decisions and execution. Howsoever, the extremely low vacancy rates and notice period for relocation could serve as a buffer until later this year. In Shinjuku, limited office space, outdated construction and upgradations, lack of development pipelines, and hence, limited office supply and low rents have forced low vacancy. The growth in this area is projected to rise due to the trend of coworking spaces coming up, especially WEWork. The construction of new commercial office spaces, except coworking spaces does not seem to be working out for the region.

Amid global pandemic, and consequent economic slowdown, office tenants are forced to make difficult decisions to navigate the ongoing uncertainty. Hence, major share of the projects planned in 2019, may have to be temporarily put on hold to better assess the recession. As against this, Tokyo has seen its fair share of office developments over the past few years, with many modern large-scale structures showing up throughout the Central region. With hiring on freeze for majority of the companies and hence workforce increase looking out to be timid, office space expansion plans again stand on a huge risk. Companies shrinking office space by continuing some remote working practices, or setting up satellite offices closer to residential areas, may change the office space market entirely.

Some of the major projects currently under development in the Central five wards regions, C5W, are Tokyo Toranomon Global Square, Shinbashi Tamura Redevelopment, Toranomon Hills Station Tower, Toranomon 2-Chome Phase 1 Redevelopment, Toranomon Azabudai Phase 1 Redevelopment, Akasaka 2-Chome Project, Roppongi 1-Chome Office Project and Roppongi 5-Chome West Project, ranging completion from 2020-23. As per experts, 2020 might just bear the effects of the pandemic due to heavy investments and tourism expected due to the megaevent planned in mid-2021, but post Olympics might register a lull in the commercial space construction sector.

Competitive Landscape

The Japan Commercial construction market is highly dominated by large general contractors, Gene-Cons, covering entire value chain from design to construction, besides minor share held by the approximately 700,000 SME’s and local contractors. Due to investment flow amid Olympics 2020 preparations, the major local and international players have created relatively fair enough competitive environment in the sector. Still, the market opens opportunities for small and medium players due to increasing govt investments in the sector.

A few key players in the market include TODA Corp., Kumagui Gumi Co. Ltd., Konoike Construction Co. Ltd., Asanuma Corporation, Ichiken Co.Ltd., and Nihon Kensetsu Co. Ltd. With major share held by these stalwarts, local contractors anticipate further opportuniies in the commercial construction domain to mark their presence in the industry.

Additional Benefits:

The market estimate (ME) sheet in Excel format
3 months of analyst support

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