Prime Minister Keir Starmer's announcement last week of a £15 billion increase in UK defence spending over the next four years has caught the attention of real estate investors searching for new sources of demand in a sluggish market. Speaking at a BAE Systems site in Maidenhead, 30 miles west of London, Starmer outlined plans to raise the proportion of GDP allocated to defence amid what he characterised as shifting geopolitical certainties. The real estate sector, hampered by high interest rates and anaemic economic expansion, is now evaluating the property implications of the largest defence commitment in a generation.

According to data from BNP Paribas Asset Management Alts shared with Bisnow, the spending increase could generate more than 32 million square feet of real estate demand across the UK, including approximately 14 million square feet of new logistics space. The UK spent 2.3 per cent of GDP on defence in the 2024-2025 fiscal year. Under the new plans, that figure will rise to 2.7 per cent by 2028, with a longer-term goal of reaching 3.5 per cent by 2035 in line with NATO targets. BNP Paribas AM Alts had initially modelled demand of 35 million square feet assuming an increase to 2.9 per cent by 2030; the 2.7 per cent trajectory yields an estimate of around 30 million square feet.

Justin Curlow, BNP Paribas AM Global Head of Research and Strategy for Alts, and senior research analyst Kerrie Shaw wrote that the shift represents one of the most significant fiscal turning points in recent European history. They noted in a research paper that the transition from decades of underinvestment toward greater strategic autonomy carries far-reaching consequences for growth, industry and real assets. The demand, however, will not be evenly distributed. Curlow and Shaw identified seven main geographic clusters where defence expertise is concentrated and where the bulk of new real estate requirements are likely to materialise.

Scotland hosts shipbuilding activity on the west coast around Glasgow, while Glasgow and Edinburgh have emerged as centres for cyberdefence and emerging technology. The north-west of England is home to several vehicle and land-system companies, including MBDA and Rheinmetall. The south-west accommodates aerospace and defence electronics firms such as Thales and Rolls-Royce. The M4 corridor houses multiple missile and air-defence companies, and London remains a major hub for research and development in sectors including cyberdefence and emerging technologies. Curlow and Shaw advised investors to target major industrial and logistics markets in these regions.

The Defence Investment Plan announced by the government places greater emphasis on drone and unmanned vehicle capability than earlier iterations, reflecting the evolving character of modern warfare. That technological shift will influence the type of real estate defence companies require. Robert Pearson, a director at Savills, said investors and landlords are increasingly focused on defence-related manufacturing, drone technology, aerospace, logistics and supply-chain occupiers as growth areas. He cautioned, however, that security requirements and restrictions around ownership and occupation mean not all assets or landlords will be able to access this demand.

Many expanding defence firms will need bespoke, highly technical facilities. Developers may be willing to deliver these on a build-to-suit basis, but some prefer to target less specialised properties that could eventually be re-let to a different occupier. BNP Paribas AM noted that stricter oversight of construction and planning could significantly increase both the time required for construction and the costs of construction and fit-out. Savills estimated that fit-out costs for defence-occupied space could run 20 to 40 per cent higher than for standard industrial space.

Ownership structures present another complication. Many defence-sector companies undertake classified work and are therefore more likely to own rather than lease assets. At a minimum, they prefer to work with a small number of vetted partners. BNP Paribas AM suggested that the most accessible strategy for real estate investors may be to look beyond defence manufacturers themselves and target the supply chains that will cluster around them. These suppliers do not face the same security constraints and will gravitate toward manufacturers as they expand.

Of the approximately 32 million square feet of new demand, BNP Paribas estimated that about 18 million square feet is likely to come from the manufacturing sector, with roughly 14 million square feet from logistics. Manufacturing represents the larger share, but logistics may prove easier for conventional investors to access. Curlow and Shaw wrote that leasing standard, modern industrial and logistics units to the large number of defence-related suppliers may offer investors better risk-adjusted opportunities than renting to defence manufacturers directly. The supply-chain play, in other words, may be the one family offices and institutional capital can actually execute.