A recent analysis by BNPP AM Alts indicates that increasing defence spending in Europe will have a significant impact on the industrial and logistics property market. Experts predict that defence spending could rise to 2.9 percent of Europe's gross domestic product by 2030. This would entail a redefinition of the demand for specific types of property.
The study by BNPP AM Alts estimates a potential of 233,000 additional defence-related jobs in production and logistics. This correlates with a projected additional space requirement of approximately 16 million square metres. This figure would correspond to almost nine percent of the average annual European logistics space turnover over the past decade.
Justin Curlow, Global Head of Research & Strategy at BNPP AM Alts, explains the short-term implications: "The short-term focus on rearmament is likely to generate additional demand for warehouse and production space. This increase in industrial net absorption should open up significant opportunities for acquiring existing properties and for new project developments." The largest increases are expected in the United Kingdom, Germany, and France. An additional demand of 3.3 million square metres is predicted for the United Kingdom, 2.9 million square metres for Germany, and 2.2 million square metres for France.
Regional Impact and Special Requirements
Existing defence clusters, which possess specialised personnel, research facilities, and efficient transport infrastructure, are predestined to benefit from this trend. For Germany, the turnover of the defence industry is estimated at EUR 42 billion to EUR 48 billion in 2025. The sector directly employs around 150,000 people, a number that rises to approximately 250,000 when suppliers and indirect employment are included.
In the short term, the regions of West and Central Germany are particularly affected by investments related to ammunition, mobility, and air and missile defence. In the medium term, the focus shifts to naval and shipbuilding locations in the north. Southern Germany, particularly Bavaria and Baden-Württemberg, forms the long-term centre for high technology and already accounts for almost half of Germany's defence employment.
Properties as an Investment Opportunity
The additional property requirement is not limited exclusively to the production facilities of major defence manufacturers. Their supplier companies, logistics service providers, and providers of components, drones, and communication systems also need adequate space. While large manufacturers often prefer specialised, owner-occupied buildings for their complex production processes, modern, flexible industrial and logistics units are predestined for many companies in the supply chains.
Specific requirements for security, storage, and production can increase the development and fit-out costs of defence-related spaces by 20 to 40 percent compared to standard industrial spaces, according to a Savills estimate. Although highly specialised properties offer stable returns with creditworthy tenants from an economically resilient sector under long-term leases, they prove more difficult to re-let when a tenant changes. Curlow summarises the consideration: "Leasing standardised, modern industrial and logistics spaces to defence suppliers can therefore offer better risk-adjusted opportunities than direct leasing to major defence manufacturers."
