The Logistics Upside of Rearmament

09/09/2026

Autor

Justin Curlow

Head of Research & Strategy

Blogbeitrag

Europe’s defence build-up will reach far beyond military budgets and manufacturing orders. As production expands and supply chains become more deeply integrated across the region, the effects will also be felt in industrial and logistics real estate. For investors, however, the opportunity is not simply about the provision of more space. It is about anticipating where demand will emerge, which occupiers will drive it and what type of buildings they will require.

In our main scenario, European defence spending rises to 2.9% of GDP by 2030. We estimate that this could create 233,000 additional defence-related manufacturing and logistics jobs, generating demand for 16 million sqm of floorspace. This equals around 9% of average annual European logistics take-up over the past decade. The largest increases are projected for the UK, Germany and France, at 3.3 million, 2.9 million and 2.2 million sqm respectively.

Estimating the sector’s footprint is complex because of confidentiality due to security considerations and because many major manufacturers operate across multiple activities, many of which are only partly defence-related. Requirements also depend on what is produced: drones use space more efficiently than submarines. Nevertheless, the estimates point to substantial expansion. Existing clusters stand to benefit most, as they offer specialised labour, suppliers, research institutions and transport infrastructure.

Germany illustrates how this demand may develop by region and over time. Recent estimates in the sector suggest subdued take-up and rising vacancy in parts of Central Germany. Although this may seem at odds with additional defence-driven demand, the build-up will be sequential and concentrated around established defence clusters rather than spread evenly across the market.

We estimate that German defence manufacturing generated turnover of EUR 42–48 billion in 2025. Around 150,000 people work directly in the industry, rising to approximately 250,000 when suppliers and induced employment are included. These businesses form a corridor from Schleswig-Holstein through North Rhine-Westphalia to Bavaria.

In the near term, investment is flowing first into mobility, ammunition, and air and missile defence, primarily benefiting central and western Germany. North Rhine-Westphalia is a core hub for armoured vehicles, ammunition and large-scale ground systems. At the same time, the expansion of air and missile defence requires secure storage, testing and high-specification infrastructure in central and eastern Germany.

Over the medium term, we expect momentum to move northwards, reinforcing naval and maritime systems around Kiel and Bremen. Further ahead, Bavaria and Baden-Württemberg form the high-technology growth engine and account for almost 50% of German defence employment. Overall, the build-up is more likely to reinforce existing industrial and logistics hubs than to remap Germany's defence geography.

For investors, this sequencing is critical. Some established clusters already have limited suitable land and buildings. Other areas could benefit where available land is combined with a strong manufacturing base and workers with the required skills.

Vacancy does not automatically resolve the challenge. New facilities will still be needed because much of Europe's vacant industrial and logistics stock is obsolete or poorly located and unsuitable for defence-related use. This creates opportunities to acquire standing assets, secure land in strategic locations and pursue new development.

The opportunity extends beyond the large manufacturers. Prime contractors often prefer purpose-built, owner occupied facilities for complex production. However, they depend on networks of subcontractors, logistics providers and suppliers. For many of these businesses, standard, modern industrial and warehouse units are more suitable, although clean rooms, secure zones or testing space may be required.

This distinction shapes risk and return. Defence operations may require heavy-load floors, secure storage and communication networks, climate control and enhanced perimeter security. Estimates by Savills suggest that fit-out costs could be 20-40% higher than for standard industrial space.

For occupier-specific requirements, investors might build to hold on very long-term leases, offering long income let to solid tenants in a sector with low economic cyclicality. Yet delivering and holding highly tailored buildings presents challenges, particularly in non-traditional geographies. Their specialisation can make them difficult to re-let. Some institutional landlords may also find defence occupation incompatible with their responsible investment and ESG policies; others may prefer to build to sell.

In our view, leasing standard, modern industrial and logistics units to defence related suppliers may therefore offer better risk-adjusted opportunities than renting directly to major manufacturers. Securing land in strategic locations and developing flexible, secure units for the evolving requirements of the defence supply chain provides a further opportunity.

All in all, Europe's short-term focus on rearmament is expected to generate additional warehouse and manufacturing demand, creating opportunities in both standing assets and new development. Locations able to serve this segment alongside the wider bulk warehouse and distribution markets are expected to be best positioned to outperform.