Europe Rearms: an emerging structural demand driver for I&L real estate

In just a few years, defence has surged to the top of national agendas, with multi-billion-euro investment plans announced across Europe. A significant share of these budgets is earmarked for new equipment, making defence a major growth driver for the European manufacturing sector—and for Industrial & Logistics real estate. With these ambitious, long-term commitments underway, understanding the roadmap ahead is essential for navigating this new era of defence-driven economic transformation.

Key Learnings

High investments planned in new equipment, produced in Europe: In the coming years, a large share of defence budgets will go toward new equipment. To become more self-reliant, sourcing from European manufacturers is a key priority
Impact already happening, reflected via increased space enquiries: Based on an internal survey among from GARBE business units with customer contact, defence-related enquiries for industrial space have nearly doubled in the first five months of 2025 compared to all of 2024, signalling real-time demand growth.
Most impact in Western Europe expected in near-term, but not only traditional logistics hotspots: Western Europe, home to the largest defence producers, is the first region to benefit of defence investment spurge. Production growth is expected often close to existing manufacturing hubs, which are not always located at the traditional logistics hubs.
Repurposing existing manufacturing facilities fast-growing trend: To respond quickly to the volatile geopolitical landscape and high demand, defence manufacturers focus on repurposing existing manufacturing facilities. A main advantage is that the skilled workforce is already in place, a major advantage as the Western European labour market is constrained.
While strong growth is expected, real estate opportunities vary significantly by defence segment: Demand depends on factors like specialization, infrastructure needs, and security protocols. Suppliers to end users are more likely to lease space, given their typically less restrictive requirements.

A new reality with massive investment planned, particularly on equipment in Europe

European countries take defence into their own hands:

The idea that Europe can indefinitely rely on the U.S. security umbrella is increasingly being questioned. This move toward self-reliance had already been a long-developing trend, especially with the U.S.’s “pivot to Asia,” and has accelerated rapidly under the current U.S. administration. In response to this new reality, nearly all European nations have launched initiatives to dramatically increase defence budgets, with a stronger focus on collaboration among European countries. This was formalized at the recent NATO summit in The Hague, where alliance members agreed on an overall defence spending target of 5% of GDP by 2032—3.5% allocated to core military expenditures and 1.5% to defence- and security-related investments.¹

Defence-spending-as-a-percentage-of-GDP-2024

Figure 1: Defence spending in Europe as a percentage of GDP 2025

Equipment as the main beneficiary:

Equipment procurement is expected to be the primary beneficiary of the increased defence spending, as European armies replenish ammunition stocks, modernize heavy ground forces, and invest in emerging technologies such as drones and autonomous systems. As seen in figure 2, the impact on the manufacturing sectors will be significant, with equipment procurement’s share of total defence spending potentially rising above 40%—double pre-invasion levels.²

Reshoring manufacturing and production in Europe—for Europe:

Strategic initiatives are now focused on bringing manufacturing and expertise back to Europe, aiming to reduce dependence on policy shifts and decision-making outside the continent. This priority is echoed in the report on The Future of European Competitiveness by Mario Draghi, commissioned by the European Commission.

Between mid-2022 and mid-2023, 63% of all EU defence orders were placed with U.S. companies, with a further 15% going to other non-EU suppliers³. The European Defence Industrial Strategy outlines a transition, aiming to procure at least 50% of defence spending within the EU by 2030, and 60% by 2035⁴.

To accelerate this transition, the EU approved a landmark €150 billion defence investment fund in May 2025. The fund is aimed at ramping up joint procurement, scaling industrial production, and strengthening European supply chains—signalling a new phase of long-term, coordinated defence capability building⁵.

Geopolitcal Expert View by Nico Fitzroy of Signum Global Advisors

Growing uncertainty around the US’s role as a security guarantor will ensure that overall defence spending in Europe continues to rise in coming years. However, on a country-by-country basis, the scale of that change is likely to depend on two things: relative fiscal space and proximity to Russia. While the Nordics, Baltics, and countries like Germany and Poland, all have at least one of those necessary ingredients to a very high level, countries in western Europe, such as Italy, Spain, France and Belgium lack both factors. That likely means that Europe’s defence spending is going to increase much more, and remain at a higher level for longer, particularly in central and eastern (CEE) Europe. That trend could be accentuated by an end to the Ukraine conflict (something that remains unlikely in the near term, but which will become more feasible in the longer term), as countries in eastern Europe would view a militarized Russia as an even greater threat than before, given its ability to redirect resources away from Ukraine, while western European countries would have a reduced need to spend, given less money required to support Ukraine.

A key question is who is likely to benefit from the increase in spending. The EU’s EUR 150 bn SAFE programme will likely be directed only towards Europe-based producers, but the need to maintain strong US relations continues to be an important foreign policy objective for many CEE countries, meaning US companies will likely still benefit from increased defence purchases in parts of eastern Europe.

Meanwhile, polling across Europe suggests that defence spending is far from the top of voters’ priorities. As a result, countries will likely feel the need to sell the shift in defence spending to their populations by directing spending towards national champions wherever possible. Companies from countries that spend the most (e.g. Germany) are therefore likely to benefit disproportionally. Preference is also likely to be given to goods that offer a clear use case for national defence (e.g. drone and missile defence systems) and that provide utility in other areas (e.g. cyber capabilities and military infrastructure).

Nico Fitzroy, Partner and Senior Analyst at Signum Global Advisors

Signum Global provides best-in-class research and customized advice for an exclusive set of institutions, ultimately helping clients navigate a world of ever growing macro and geopolitical uncertainty.

More than two-thirds of the total market share among European armaments manufacturers is concentrated in the largest Western European markets.

Largest defence manufacturers in Western Europe

The European defence industry remains significantly smaller than that of the U.S., as the U.S. has positioned itself as the largest global military power for decades. Over the past 10 years, European defence manufacturers have accounted for between 9% and 12% of global turnover⁶.

However, with rising defence budgets and targeted investments across Europe, this share is expected to increase. More than two-thirds of the total market share among European armaments manufacturers is concentrated in the largest Western European markets, including the United Kingdom, France, and Germany⁷.

Incoming defence related warehouse demand identified

Gaining scale and seeing demand impact takes time

Although rearming Europe is one of the highest priorities for many national governments and the European Commission, the tangible impact—as well as the resulting demand for warehousing—will take time to materialize.

The quickest way to boost output is by ramping up production at existing manufacturing facilities. At the same time, there is growing momentum behind the repurposing of redundant factories, e. g. for automotive or rail vehicles —a trend that is gaining traction across the defence sector. These efforts are expected to contribute to production capacity in the medium term (2 to 5 years) and offer several advantages, such as leveraging existing infrastructure and logistics networks, and tapping into a highly skilled and experienced workforce.

In 2025, this initiative has clearly gained momentum, as shown by the following examples announced:

Repurposing former train/tram manufacturing site in Germany: In Görlitz (Saxony), defence manufacturer KNDS is transforming a facility for manufacturing components for Leopard II tanks and Puma infantry vehicles. This move secures 350 of the site’s 700 jobs⁸.
Conversion of two Rheinmetall automotive plants in Germany: In Neuss (North Rhine-Westphalia) and Berlin, Rheinmetall announced the conversion of two sites, both affected by challenges in the automotive industry, into hybrid plants able to produce for their Weapon and Ammunition division, while still maintaining a limited degree of automotive production.⁹
Actively recruiting employees from scheduled closure sites Bosch and Continental in Germany:
In early 2025, Bosch and Continental announced plans to close their Wetzlar site. In response, Hensoldt, a German defence electronics manufacturer, offered to hire nearly 200 of these employees, aiming to integrate them into its radar production operations.¹⁰
Repurposing car plant for UAV production in France: The French Directorate General of Armaments (DGA) is exploring the possibility of repurposing automotive plants for the production of unmanned aerial vehicles (UAVs) for the national armed forces. This initiative seeks to capitalize on existing industrial infrastructure to accelerate the production of drones and strengthen France’s defence capabilities.¹¹
Converting a former BMW/Mini plant into a defence innovation campus in The Netherlands: In Born, South Netherlands, VDL and the Dutch Ministry of Defence are combining aerospace, automotive, and defence sectors into a new campus, aimed at fostering the growth of companies with a focus on emerging technologies such as drones, autonomous systems, and advanced materials.¹²

Suppliers are located near key manufacturers to ensure an efficient and secure supply chain.

Sector-specific requirements with cross-industry implications

Defence industry is clustered, for now: Arms industries are concentrated in specific clusters. The production of defence armaments is complex, involving a wide range of specialized suppliers. Many of these suppliers are located near key manufacturers to ensure an efficient and secure supply chain. As global tensions and geopolitical policies change rapidly, the supply chains of the defence industry are becoming more proactive, with higher inventories.

As the president of BAE Systems Hägglunds stated:
“Just in time is dead”¹³ . Key strategies to reduce supply chain risks and accelerate production include greater standardization of end-products and an increased focus on more local partnerships.

Defence-related demand is not expected to be solely concentrated in these traditional logistics hubs

Demand beyond the traditional logistics hotspots:

Key logistics hotspots in Europe, including the Midlands, Southern Netherlands, Lyon, and Silesia, have emerged over the past 25 years, as many logistics companies had fairly similar location requirements. However, the incremental defence-related demand is not expected to be solely concentrated in these traditional logistics hubs, as its locational needs can vary.

For example, the Nouvelle-Aquitaine region in the southwest of France is not a conventional logistics hotspot, yet it hosts major manufacturing hubs for companies like Dassault Aviation and Thales. As order books grow for these key manufacturers, the resulting demand may extend to their supplier networks, increasing the need for industrial space nearby.

Factors such as complexity, urgency, the level of security, and dependence on international suppliers all determine location priorities. Overall, preferred locations must support the storage and rapid deployment of sensitive materials, often requiring proximity to military bases, ports, and airfields, as well as access to secure road and rail corridors.

Density of defence companies in Europe (2025)

Figure 4: Heatmap concentrations arms industry
Source: Dun & Bradstreet, supplemented by own research

Opportunities differ per defence category level:

Determining the asset for operations and the feasibility of leasing space instead of owner-occupation varies between defence categories and is influenced by a wide range of factors, including the level of specialization, on-site infrastructure needs, and security requirements.

Overall, suppliers to end users (manufacturers) are more likely to lease space, as their security requirements are typically less restrictive.

Figure 5: Feasibility potential demand for leasing I&L space

The lower the security, specialization, and specific use case, the higher the likelihood of doing business.

Investments in defence capabilities can have a revolutionary impact on the European manufacturing sector, but the opportunities for I&L real estate investors and developers differ beneath the surface. Generally, the lower the security, specialization, and specific use case, the higher the likelihood of doing business. Additionally, the further a supplier moves from its end user (e.g., Tier II, Tier III), the greater the potential opportunity.

Within shorter timeframe, manufacturing of defence products in modern institutional warehouse facility can include:

Figure 6: Potential defence operations suitable for modern warehousing

Insight: reflection what’s happening on the ground

GARBE business units with customer contact across Europe were asked to share their perspectives on the impact and reflections of their conversations regarding real estate requirements with (potential) defence occupiers:

Rising importance: There is a clear consensus among survey participants that defence has become a more important driver since Russia’s invasion of Ukraine, and it is expected to grow in importance in the near future (see figure 7).
Actual increase in enquiries: In the first five months of 2025 alone, incoming space requests have nearly doubled compared to the full year of 2024. This acceleration is expected to continue in the coming months.
Proximity as a key location requirement: In addition to more generic requirements such as accessibility, proximity was highlighted as a critical factor. This includes proximity to suppliers and manufacturers, military infrastructure (e.g., airbases), and logistics hubs.
Security as a paramount building requirement: High security standards were the most frequently mentioned requirement. These can include strict access control, perimeter fencing, protection against sabotage, and compliance with military confidentiality protocols and strict oversight of construction details and planning.

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Source: bpb.de, link: NATO-Gipfel 2025 in Den Haag | Hintergrund aktuell | bpb.de
Source: Oxford Economics
Source: Future of European Competitiveness, link: 97e481fd-2dc3-412d-be4c-f152a8232961_en
Source: European Commission, link: Q&A on EDIS and EDIP
Source: Reuters, link: https://www.reuters.com/business/aerospace-defense/eu-ministers-approve-new-150-bln-euro-arms-fund-2025-05-27/
Source: Goldman Sachs, link: How much will rising defense spending boost Europe’s economy? | Goldman Sachs
Source: SIPRI
Defence Industry Europe, 05.02.2025: Alstom and KNDS reach agreement on Görlitz site transfer, securing jobs and future production
Reuters, 24.02.2025: Rheinmetall to convert German factories to make defence equipment
Bloomberg, 31.01.2025: Hensoldt Offers to Take Over Continental, Bosch Workers
Defense Express, 05.02.2025: France Follows Suit and Considers Repurposing a Car Plant For Making UAVs
VDL; 21.03.2025: VDL and Defence joining forces to scale up defence production in the Netherlands
Source: EDS, link: Just in time is dead: How European manufacturers are gearing up for land warfare

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