The U.S. defense sector is undergoing its fastest expansion in decades, driven by a shift in how the military approaches readiness that has triggered a surge in multibillion-dollar contracts and a ballooning need for commercial space. The war with Iran has intensified momentum that began last year, adding new replenishment needs to an already strained supply chain and pushing defense contractors to expand footprints and break ground on new facilities. Professionals in the sector say the Trump administration's shift to wartime posture—and the trillion-dollar budgets behind it—is a structural demand engine for defense-oriented real estate that has an exceptionally long tail.

Defense Secretary Pete Hegseth declared in a November speech that the military was permanently positioning its acquisition system to be on a wartime footing. The U.S. has for the past two decades maintained a military posture somewhere between peacetime and wartime footing, according to a July analysis from the Center for Strategic and International Studies. The ramp-up to a permanent wartime posture is a profound demand driver as the Defense Department works to not only replace weapons sent to Ukraine and spent in Iran but also to build a more robust and resilient fighting force, CSIS found.

Roughly 10,000 new defense and aerospace companies have entered the market in the last two years, with startups and nontraditional firms attracting $120B in 2025 alone, according to the bipartisan Washington, D.C.-based think tank. Luke Staubitz, a Kidder Mathews aerospace leasing specialist and broker based in Los Angeles, said the pace of company formation shows no sign of slowing. "I don't see any end in sight to it. These companies continue to be founded and to grow at a pace that we've never really seen before," Staubitz said. "If anything, in 2026, we continue to see an acceleration of the growth of these companies."

The Trump administration has spent massively on the military and is asking for more—$1.5T in the next fiscal year. The war with Iran has cost at least $38B, and the House of Representatives on July 22 narrowly passed a bill giving the Defense Department another $1.1T to help sustain operations. That bill faces tough odds in the Senate, but the president has already directed huge amounts of capital toward military spending. The sustained flow of capital is reshaping demand for industrial and specialized office properties across the country.

"There's now a big push to rearm the armed forces because of what's already been spent and sent to the Ukraine and the Iran conflicts, and so we're seeing missile companies and companies that make parts that are part of defense systems really accelerate their need for space," Staubitz said. COPT Defense Properties CEO Stephen Budorick echoed that assessment on the REIT's earnings call Tuesday, stating that "National defense spending has entered the era of trillion-dollar-based budgets to support the creation and development of advanced technology weapons programs, and thereby creating current and growing opportunities throughout our markets."

COPT Defense Properties recorded 518K SF worth of leasing in the second quarter, including 171K SF in vacant space or projects under development. The REIT has an enviable 94.5% occupancy rate given its heavy focus on specialized office space, and it broke ground on 885K SF of new construction in the second quarter that was already 73% leased. The U.S. government is COPT's largest tenant by far, accounting for 35% of the company's rental revenue in the second quarter. COPT has a deep development pipeline, and Budorick said almost every new requirement for the REIT includes a sensitive compartmented information facility, or SCIF, which offers strong margins on build-to-suit projects.

Weapons-makers themselves are expanding as well, bringing their considerable budgets to bear on new facilities to manufacture defense systems. Anduril opened a $2B factory for autonomous aerial drones outside Columbus, Ohio, in March. It was the first phase of a project known as Arsenal-1 that was announced in January 2024 and promises to bring more than 5M SF of manufacturing space to the area by 2035. Austal USA executives and military leaders in June gathered in Mobile, Alabama, to celebrate the opening of the first phase of its planned 370K SF submarine manufacturing facility.

Shipbuilding is a special area of focus for the White House, and it is attracting high-profile investment along the way. JPMorgan Chase CEO Jamie Dimon appeared from the Philadelphia Navy Yard for an interview with CNBC on July 15 to promote the firm's new $24M investment at the site. JPMorgan's investment is meant to boost operations at the Navy Yard after South Korean shipbuilder Hanwha committed $5B to the development last year. Some defense sector momentum in real estate existed before the war and even before Trump's signature budget package, the One Big Beautiful Bill Act, added a menu of incentives to manufacture products domestically.

Contracts were being signed to replenish stockpiles depleted by arms shipments to Ukraine, and some of those same advanced systems are being used in Iran, adding another layer to demand. Jerry McGinn, director of the Center for the Industrial Base at CSIS, pointed to a $35B deal the U.S. government signed with Lockheed Martin in June to quadruple production of Terminal High Altitude Area Defense, or THAAD, interceptors as a prime example of a weapons system that is being leveraged in Ukraine and the Middle East. "You're going to see more of those coming in the coming weeks," he said.