Construction Industry Bankruptcies and Closures Surge 30% Year-on-Year, Exceeding Lehman Levels to Record Highest Ever; Naphtha Shortage Widens Divide, SME Elimination Likely to Continue

Teikoku Databank, Ltd. has conducted a survey and analysis on the occurrence of bankruptcies and business closures/dissolutions in the construction industry.

SUMMARY

In the first half of 2026 (January–June), bankruptcies (liabilities of ¥10 million or more, legal proceedings) in the construction industry totaled 1,043 cases, exceeding the same period of the previous year by 57 cases, or 5.8%. Additionally, business closures and dissolutions (hereinafter referred to as 'closures') reached 4,894 cases by the end of June, an increase of 1,064 cases (27.8%) compared to the same period last year. As a result, the total number of bankruptcies and closures in the construction industry during the first half of this year—the cumulative 'exit' count—reached 5,937 cases, surpassing the 5,811 cases recorded in 2009, the year following the Lehman Shock, and marking the highest number ever for a first half.

[Note]

Bankruptcy: Bankruptcy involving liabilities of ¥10 million or more and legal proceedings.

Closures and Dissolutions: Companies confirmed to have ceased operations without formal procedures (closures), or confirmed to have dissolved via commercial registration (excluding 'deemed dissolutions'). (Closures and dissolutions exclude bankruptcies involving legal proceedings.)

Reporting Period: January 1, 2000 – June 30, 2026

Construction Industry Bankruptcies and Closures Surge 30% Year-on-Year, Exceeding Lehman Levels to Record Highest Ever

In the first half of 2026 (January–June), bankruptcies (liabilities of ¥10 million or more, legal proceedings) in the construction industry totaled 1,043 cases, exceeding the same period of the previous year by 57 cases (5.8%). Closures and dissolutions (hereinafter 'closures') reached 4,894 cases by the end of June, an increase of 1,064 cases (27.8%) compared to the same period last year. As a result, the total number of bankruptcies and closures in the construction industry during the first half of this year—the cumulative 'exit' count—reached 5,937 cases, surpassing the 5,811 cases recorded in 2009, the year following the Lehman Shock, and marking the highest number ever for a first half.

When examining the cumulative number of bankruptcies and closures by sector, the highest number was in 'wooden building construction,' including homebuilders and construction firms specializing in new detached houses, with 947 cases—accounting for approximately 16% of the total and exceeding 900 cases in the first half for the first time in nine years since 2017. In addition to rising prices of construction materials and land, declining consumer demand due to higher home loan interest rates has reduced the number of construction starts. Stricter building permit reviews due to amendments to the Building Standards Law (such as the reduction of Class 4 special exceptions), longer design and application processing times, and resulting construction delays and extended project timelines have created operational bottlenecks, leading many businesses to abandon continued operations.

Among construction sectors, 'plastering work' saw the largest year-on-year increase, rising 67.7% to 104 cases. 'Metal roofing work' (50 cases, up 66.7% year-on-year) and 'tiling work' (45 cases, up 60.7%) also saw increases exceeding 60%.

In the construction industry, in addition to the long-standing shortage of skilled workers, recent years have seen ongoing shortages and price hikes in petroleum-based construction materials such as unit baths, paints, insulation, adhesives, and PVC pipes. Unlike large general contractors and homebuilders, which receive priority material supply due to strong financial resources, many small and medium-sized construction firms and small-scale contractors report that 'materials simply aren't reaching us' or 'purchase prices have risen so much that they're unaffordable.' Triggered by naphtha shortages, the management gap between 'haves' and 'have-nots' in the construction industry has become increasingly apparent.

Currently, no bankruptcy cases have been confirmed where recent 'naphtha supply instability' was the primary cause. However, many businesses are still striving to 'somehow keep construction sites running' despite material shortages. On the other hand, small-scale operators and self-employed contractors ('hitoben') who have long operated under high-cost conditions with little profit and limited cash reserves are particularly vulnerable. Rapid price hikes in materials and project delays due to parts shortages can quickly worsen their cash flow. The material shortages and price surges stemming from geopolitical tensions in the Middle East are largely beyond the control of business operators, and the number of construction companies abandoning operations due to unsustainable conditions is likely to increase.