In recent years, many urban redevelopment projects across Japan (especially in Tokyo area) have been forced into postponement or suspension, and in some cases cancellation.
Developers (real estate and development companies) no longer show the same level of drive they once had. But why is this happening? The reason is that the environment surrounding redevelopment has dramatically changed — including rising construction material costs, higher labor costs, labor shortages, stricter administrative reviews, changes in landowners’ awareness, shifts in power dynamics between general contractors and developers, and pressure from shareholders focused on short term profits. These factors have started acting in combination. As a result, warning signs have begun to appear for the project’s profitability and feasibility.
The following are the main factors behind this changing environment.
1. Rising Construction Material Costs
Global inflation pressures, supply chain disruptions, and the depreciation of the yen — which has pushed up prices for imported materials — have contributed to significant price increases for essential construction materials such as metals, concrete, and equipment. Higher material costs lead to increased project expenses, and where costs balloon, profitability becomes difficult. This has been a major reason for postponements, suspensions, and cancellations of redevelopment plans here in Japan.
2. Labor Shortages
Japan’s declining birthrate and population, coupled with changes in work–life balance policies, have led to a serious shortage of labor across the country — and the construction industry is of no exception. Skilled workers are in chronic short supply, and there is upward pressure on wages for existing workers, which further pushes up overall project costs. Labor shortages also cause construction delays, making it harder to complete projects in time.
3. Rising Interest Rates
Recent increases in interest rates have started to affect both redevelopment projects and the companies managing them. Because redevelopment firms typically borrow large sums of money from financial institutions over the long term, rising interest rates translate into higher financing costs, undermining project profitability. As a result, decisions to reassess or postpone redevelopment projects are more likely.
Higher interest rates also affect property buyers by increasing mortgage payments. This can make it harder for developers to sell reserved units (such as apartments or offices), forcing them to adjust sales plans, prices, and rental conditions — which may further pressure project timelines and feasibility.
4. Stricter Government Administration
In redevelopment, there have been cases where a developer secretly yields enormous profits from the project at the expenses of landowners, and this type of business strategy recently became exposed to landowners.
This has triggered landowner’s movements against developers, often involving local governments as well. In response, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) — combined with national budget constraints — has begun shifting toward stricter and more transparent enforcement of redevelopment guidelines.
Last year, the ministry has revised related guidelines and communicated to local governments as follows:
(1) SYBSIDY eligibility should be limited to projects with high necessity and urgency.
(2) RESERVED UNIT PRICE (per square meter) should not significantly deviate from local market rates.
These tighter standards make it harder for developers to carry out their redevelopment projects as originally planned. The results could possibly lead to delays or cancellations.
5. Increased Awareness of Landowner Rights
In the past, redevelopment projects were often carried out without landowners understanding the project sufficiently (most of the time, landowners were given no choice but to accept one sided explanations by developers). Recently, however, landowners have gained greater awareness of their property rights as well as human rights. They have started asking questions and expressing opinions publicly, and many of them now decide not to consent to redevelopment until they fully understand and agree with the plan.
Because some redevelopment schemes include provisions that disadvantage landowners or keep details hidden, stronger landowner awareness against developers makes negotiations more difficult, lengthening the time needed to build consensus. In some cases, landowners have even declared withdrawal from projects or demanded full cancellations.
6. Growing Influence of General Contractors
Traditionally, developers took initiatives to control redevelopment projects in cooperation with affiliated general contractors. Today, rising material costs and labor shortages have led general contractors to hold stronger bargaining power, even to the point of reversing traditional power dynamics.
In the past, if construction fell behind schedule, general contractors often gathered workers and equipment from across the country at their own expense to catch up and meet with project deadline. But the situation is different now. Today, contractors more frequently demand developers to change their design or timelines based on cost, safety, or technical constraints.
7. Rise of Activist Shareholders
“Activist shareholders” are investors who actively use their shareholder positions to influence corporate management, often aiming for short term profit increases.
The term was once associated with domestic groups like the Murakami Fund, but in recent years, U.S. based activist funds are gaining presence in Japan’s market. *
* For example, the U.S.-based activist investor Elliott International, L.P., has emerged as the third-largest shareholder of Sumitomo Realty & Development Co., Ltd., holding 3.51% of its shares as of January 2026. The firm has been presenting numerous demands to the company’s management.
These investors focus on improving metrics such as return on equity (ROE) and return on investment (ROI) — priorities that often conflict with long term redevelopment projects that may take decades to realize returns. Such pressures may negatively affect firms’ redevelopment strategies
Summary
In recent times, the environment surrounding redevelopment has changed dramatically. Many redevelopment projects are being postponed, suspended, or canceled. While most of these changes stem from economic factors like construction costs and labor shortages, greater rights awareness among landowners and administrative responses also play a significant role.
In particular, in November 28, 2025 Minister of Land, Infrastructure, Transport and Tourism Kaneko made a statement in the National Diet that has caused significant controversy over legitimacy of “Junbi Kumiai”, a preparatory association. **
However, since developers and landowners are fundamentally in a relationship of conflicting interests, there is growing public scrutiny over the legitimacy of preparatory associations. In recent years, it has increasingly been pointed out that these associations are not truly landowner-led organizations, and their validity as a representative body is being called into question.
“A Preparatory Association
is nothing more than a voluntary organization,
and is not subject to the Urban Redevelopment Act.
Even if promises made to landowners are not kept,
the government will not impose legal regulation.”
This reply by the Minister has made it clear among landowners that there is no longer any reason to trust preparatory associations. As a result, there is now a possibility that the method of obtaining consent through preparatory associations could be rejected at various sites. This could lead to even more postponements, interruptions, or cancellations of projects.
Urban redevelopment (officially called “First Class Urban Redevelopment Project”) is fundamentally a project led by the landowners themselves. Therefore, the traditional operational style in which redevelopment companies take control and unilaterally advance a project, needs to undergo fundamental reform.
Finally, in order to promote healthy urban development, it is essential to establish new redevelopment models under the principles of fairness, justice, and transparency, with all stakeholders, including landowners, consulting one another.
From such standpoint, the recent wave of postponements, interruptions, and cancellations of redevelopment projects may in fact be a good opportunity to reconsider “What constitutes a healthy redevelopment project?”.
