The suburban condominium market will not be sustainable.

Nomura Real Estate’s review of its planned high-rise condominium project north of JR Gifu Station has become a hot topic.

Originally, the project was envisioned as a twin-tower complex, with a 34-story west tower led by Nomura Real Estate and an east tower led by Sekisui House. However, it appears that the west tower, which Nomura Real Estate is handling, will be reduced to just over 20 floors. The primary reason is believed to be a significant increase in construction costs.

Nomura Real Estate has been revising its development plans in similar ways across multiple projects. In October last year, the high-rise portion of the redevelopment project at the former “Nakano Sunplaza” site in Nakano Ward, Tokyo, was reduced from two towers to one. Then, in January this year, the redevelopment plan for the mixed-use facility in front of JR Tsudanuma Station in Narashino City, Chiba Prefecture, saw its completion schedule pushed back from the originally planned 2031. In both cases, the reason was that construction costs significantly exceeded the budget.

It is highly unusual for three large-scale station-front redevelopment projects to be revised within just six months. While it is possible that there are specific reasons within the company itself, the fact remains that all these cases stem from skyrocketing construction costs and delays caused by budget adjustments. Moving forward, there is a high likelihood that more projects will face revisions, delays, or cancellations due to discrepancies between initial budget estimates and actual construction costs at the time of bidding.

Over the past one to two years, construction costs have risen by several tens of percent, and land prices have also followed an upward trend. The prices of newly built condominiums continue to rise. Likewise, newly built investment condominiums have also seen price increases, but rental rates have not risen at the same pace, leading to lower expected yields. If the upward trend in costs continues, the market for owner-occupied properties will shrink due to affordability issues, while the market for investment properties will contract due to declining profitability.

Under these circumstances, a shift back to urban areas for new developments is expected.

Even if developers slow their pace, they cannot simply halt supply just because prices are too high to sell. They will have to find locations where they can still supply units, which means focusing on central areas—specifically, spots where high rental market values allow for the sale of high-priced, high-gross properties. In such locations, it is easier to attract buyers looking to upgrade from rental properties to ownership, and investment condominiums can maintain profitability despite high prices. In contrast, in suburban areas where rental prices are low, even if land prices are cheap, construction costs remain comparable to those in urban centers. In extreme cases, even if the land were free, the financial viability of both condominium sales and investment properties would be unsustainable.

In a few decades, it may no longer be unusual to see areas where “no reinforced concrete condominiums have been built since the early 21st century.”

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