Europe's Defense Spending Surge Fuels Real Estate Boom
Europe is experiencing an accelerated arms race, with countries like Germany and Poland vying to establish the largest armies on the continent. Annual defense budgets are increasing by hundreds of billions of euros, and conscription is being reintroduced in nations that had long abandoned mandatory military service. The war in Ukraine and the shifting global order have prompted European nations to reinvest in defense after decades of neglect.
This defense boom is significantly impacting the real estate sector, particularly in specialized areas. The European defense industry requires more commercial and manufacturing space, while military bases are being rebuilt and expanded to accommodate growing troop numbers. This also includes the development of civil defense structures like bunkers.
According to a Colliers analysis, the evolving battlefield and defense needs are creating demand for new types of real estate. While traditional defense manufacturing often occurred in remote, heavy-industry-linked locations or near military bases, modern technological defense production (cyber, sensors, electronic warfare, drones) requires access to skilled labor, a growing tech sector, and robust supply chains. The ideal scenario is a hybrid space combining laboratories, engineering offices, and light industrial facilities, offering a secure, integrated environment for research, development, and production.
Major investors are focusing on these potential hubs, such as industrial parks. Sirius Real Estate, for instance, invested approximately $100 million in an industrial park near Kiel, Germany, a known submarine and naval vessel production center, which already hosts the German company Rheinmetall. This trend is particularly notable against Germany's deindustrialization and economic slowdown, and Europe's struggling automotive sector, with defense businesses being among the few promising growth areas.
Key European regions are emerging as defense hubs. Munich, dubbed Europe's "drone capital," hosts numerous defense unicorns producing drones and UAVs. The Kassel region in central Germany is a stronghold for German armored vehicle production by KNDS and Rheinmetall. Koblenz houses the German army's central procurement offices, attracting many defense firms, including Israel's Elbit.
Poland aims to build an army of over 300,000 soldiers by the end of the decade, with Warsaw as a center for procurement and planning, Rzeszów as a hub for aviation development due to its role in Ukraine arms shipments, and the Katowice region for heavy military industry. Other anticipated R&D centers include Paris, Madrid, Cadiz, Rome, Stockholm, Oslo, and areas near Helsinki and Tallinn.
New defense industry locations will necessitate enhanced security, including perimeter fencing, restricted access, and surveillance systems. They also require a degree of separation from population centers for safety reasons, particularly when handling hazardous materials, and strategic positioning within European transport networks with easy access to human capital.
Military bases are also experiencing a revival. The UK is investing billions of pounds in new and renovated bases to accommodate a growing military force and improve living conditions. Germany is reactivating five abandoned bases to support its military expansion, aiming for at least 260,000 personnel within a decade. Sirius Real Estate plans to invest around €1 billion in defense-related real estate by the end of 2027. The leasing of new office space by defense companies in 2025 has tripled compared to a decade ago.
However, this rearmament is not without local opposition. Concerns about becoming targets in potential conflicts have arisen, as seen with the deployment of the Arrow 3 system in Germany. Residents in France complain about constant drone noise from testing, and in England, a revived submarine construction business has led to rising housing costs and local anger. Rheinmetall abandoned plans for a new factory near Görlitz due to local protests fearing it would make the area a target.
