Building construction is one of the options often considered for land utilization. To improve the accuracy of a business plan, it is essential to understand precisely which factors cause construction costs to vary by structure type, use, and location. This article explains typical costs per tsubo, the breakdown of expenses, and situations in which costs rise sharply.
What is the typical construction cost per tsubo for a building?
Cost per tsubo for mid-sized buildings
The following are typical cost ranges by structure type for mid-sized buildings commonly seen in commercial areas near train stations.
- Steel-reinforced concrete (SRC): JPY 900,000 to 1,100,000 per tsubo
- Reinforced concrete (RC): JPY 800,000 to 1,000,000 per tsubo
- Steel structure (S): JPY 700,000 to 900,000 per tsubo
Cost per tsubo for high-rise buildings
In large-scale redevelopment projects and high-rise building classes, construction costs increase significantly.
- SRC: JPY 1,100,000 to 1,500,000 per tsubo
- RC: JPY 1,000,000 to 1,200,000 per tsubo
- S: JPY 900,000 to 1,100,000 per tsubo
Cost per tsubo for tenant and multi-tenant buildings
The following are typical ranges for small tenant buildings of roughly two to five stories.
- RC: JPY 750,000 to 900,000 per tsubo
- S: JPY 650,000 to 800,000 per tsubo
Cost per tsubo also varies by region
Construction costs tend to be higher closer to central urban areas and lower in regional locations. This is because unit prices for concrete and building materials, transportation costs, and labor costs for skilled workers differ by region.
How are building construction costs calculated?
Construction cost = cost per tsubo × total floor area
However, the total floor area that can actually be built is limited by the building coverage ratio and floor area ratio. It is important to confirm the site area and zoning restrictions, then estimate a feasible building scale.
What expenses are included in building construction costs?
Interior and equipment costs
In addition to the cost per tsubo, elevators, air conditioning, and interior work are required. In the case of tenant buildings, there are situations where installing only the piping for each unit is sufficient, which can keep equipment costs lower than for apartment buildings.
Other incidental expenses
A wide range of expenses arise separately from the core construction cost, including survey costs (boring and land measurement), design fees, stamp duties, registration and license tax, real estate acquisition tax, fire insurance, and financing-related expenses. Accounting for all of them without omission helps improve the accuracy of the profit plan.
In what situations do construction costs exceed the market range?
Emphasis on design
Particularly for income-producing buildings and tenant buildings, exterior design and the impression of the entrance affect occupancy rates. Investment in design should therefore be evaluated in terms of cost effectiveness, based on whether it contributes to rental income over the long term.
Special equipment and elevator installation
Buildings taller than 31 meters are required to have elevators installed. Pools, hot springs, and welfare-oriented facilities are also factors that can drive construction costs up substantially.
Impact of the surrounding environment
In areas crowded with high-rise buildings, on narrow and complicated roads, or in locations with heavy traffic, the cost of related work such as security staff placement, noise control measures, and scaffolding increases. It is important to inspect surrounding conditions on site and prepare a budget that includes these additional expenses.
Related reading
- What are land grading and site development works? Basic knowledge of land development and the costs investors should understand
- Real estate exit strategies in an era of inflation and rising construction costs | A thorough explanation of whether you should sell or hold
Frequently Asked Questions (FAQ)
Q. How many years does it take to recover the initial investment in building construction?
Expected yields for tenant buildings vary by location and structure, but a general benchmark in urban areas is around 5% to 8%. It is important to estimate the recovery period based on the total investment in construction and incidental costs together with expected rental income, and to create a cash flow plan targeting recovery within 10 to 15 years.
Q. How is financing for construction costs typically arranged?
Business loans for construction funding are the standard approach. In many cases, the land is used as collateral, and the loan-to-value ratio (LTV), interest rate, and repayment period vary by financial institution. An equity contribution of 20% to 30% is often treated as a benchmark for loan screening.
Q. How much does it cost to maintain a building after construction?
It depends on the structure, scale, and equipment, but it is generally recommended to set aside 0.5% to 1% of construction cost per year for maintenance and repairs. Long-term planning should also include periodic inspection and replacement costs for major equipment such as elevators, air conditioning systems, and exterior walls.
Q. Are there any conditions that make land suitable for building construction?
Commercial zones, neighborhood commercial zones, and quasi-industrial zones are assigned relatively high floor area ratios, making them suitable for high-rise and large-scale building construction. It is also important to confirm frontage road width, shadow restrictions, and height limits, and to understand the feasible building scale in advance.
