Daphne Fecheyr/Unsplash
Rueckerconsult webinar: Wachstumsmarkt Verteidigung: Welche Immobilien-Anforderungen haben Militär und Industrie?
Germany's defence property market has moved beyond forecasts and white papers. GARBE Industrial Real Estate recently signed a lease for 10,000 square metres with a direct defence occupier at a German location — one of the first publicly disclosed transactions of its kind. "We are out of the discussion phase and firmly into the implementation phase," Jan Philipp Daun of GARBE Industrial told a Rueckerconsult webinar on defence and real estate this week. "This market is running."
The backdrop is well understood. European defence spending is rising sharply, and an increasing share is being directed towards equipment, production and supply chains rather than personnel and administration. What was previously around 20% of NATO defence budgets is forecast to rise to 45% by 2029. At the same time, more of that spending is expected to remain within Europe. Tobias Kassner, Head of Research at GARBE Industrial, estimates this could translate into demand for between 37 and 74 million square metres of production, logistics and supply-chain space across Europe over the next five years. Even the lower estimate would represent a substantial increase in industrial and logistics demand.
Institutional investors, however, should calibrate expectations carefully. Kassner estimates that only around 20% of total demand will be accessible to professional real estate investors. The remainder — munitions facilities, submarine infrastructure and highly specialised OEM production — will be built or leased directly by governments and prime contractors rather than entering the open investment market. "The very specialised requirements — munitions storage, naval infrastructure — the state does not want to relinquish those," Kassner said. "But along the supply chain, in logistics, in MRO facilities, in light industrial close to R&D — that is where the institutional market can participate."
Where the clusters are — and where they will stay
Defence-related real estate demand in Germany is not evenly distributed. A white paper prepared by Periskop Logistics in collaboration with Prof. Dr Thomas Beyerle of Hochschule Biberach identifies three established clusters. Northern Germany is maritime: Wilhelmshaven, Kiel, Flensburg, Hamburg and Bremen host naval industry, heavy vehicle technology and port logistics. Western Germany — the Cologne, Düsseldorf and Ruhr corridor extending to Kassel — is the centre of armoured vehicle production, with Rheinmetall, KMW and Dynamit Nobel among the anchors. Southern Germany, centred on Munich, specialises in sensors, guidance systems, drones, aerospace and R&D, with Airbus Defence, Hensoldt, MTU and Rohde & Schwarz among the key players.
Beyerle's assessment of future growth is blunt. "Where there is already something, there will be more," he said. "That is the analytically correct answer." New mega-clusters are unlikely to emerge. Eastern Europe is attracting greenfield investment from companies including Rheinmetall, drawn by available land, lower costs and faster planning processes. Germany's established industrial ecosystems nevertheless retain significant advantages in talent, suppliers and research infrastructure. "You cannot simply transplant a cluster," Beyerle observed. "What has developed over thirty years cannot be replicated quickly, however generous the subsidies."
The requirements of defence occupiers differ meaningfully from those of standard logistics users. A development in Lübeck cited by Daun illustrates the point. A conventional 30,000-square-metre logistics scheme had to be redesigned when a defence tenant emerged because the occupier required a standalone 10,000-square-metre facility with its own perimeter security and independent infrastructure rather than a unit within a multi-let park. Speed matters. Long planning processes deter defence occupiers. Power matters even more.
Defence tenants increasingly require electricity-intensive production and technology operations rather than simple warehousing. "In five years," Daun predicted, "we will be talking about power supply as the primary location criterion, not clear height or dock doors." The observation reaches beyond defence. As manufacturing, AI applications, automation and data-intensive processes expand, industrial and logistics assets are increasingly being evaluated through the lens of energy availability and resilience rather than traditional property specifications.
The investment case and the barriers falling away
For institutional investors, defence-related real estate offers an unusual combination of characteristics: government-backed or strategically important tenants, counter-cyclical demand and lease terms that can extend to 20 years at a time when standard logistics leases are becoming shorter. "The Bundeswehr is planned to grow from around 180,000 soldiers today to 260,000," noted Dr Kilian Mahler of Periskop Logistics. "That expansion will take place over the next five years and creates a direct pipeline of real estate requirements." He suggested a 5–10% allocation within a logistics fund as appropriate sizing, describing such assets as having "many characteristics of infrastructure, with the advantage of higher alternative-use potential."
Mahler also cautioned against treating defence real estate as a separate asset class. In his view, the strongest opportunities will often resemble conventional logistics or industrial investments with a defence tenant attached. He stressed the importance of Drittverwendungsmöglichkeiten — alternative-use potential — arguing that investors should favour assets capable of serving multiple occupier groups rather than highly specialised facilities tied to a single use.
Equally important is what has changed on the capital side. Two obstacles that previously deterred investors are steadily receding.
The first is ESG. "When we go through the regulatory frameworks — EU Taxonomy, SFDR — defence real estate is not excluded," Kassner said. "We are operating at the property level, not at the tenant activity level. The hard exclusions simply do not apply." The discussion is increasingly framed around ESSD — adding Security to the traditional ESG framework. For investors who previously regarded defence exposure as incompatible with sustainability mandates, that represents a meaningful shift.
The second is financing. "Until two years ago, a defence tenant was often an automatic exclusion criterion for banks," Daun confirmed. "That has now changed. As long as the product clearly has a defensive character, the lights are green." Banks and insurance companies are now actively financing such assets, with the caveat that controversial weapons systems remain a separate matter.
There is, however, no automatic defence premium. "We should not be expecting a defence premium," Beyerle said. "Existing assets will not suddenly command higher valuations simply because defence occupiers enter the market. The value lies in the lease structure, the tenant quality and the location."
The longer-term picture remains fluid. Drone warfare, artificial intelligence and digital command systems are shifting requirements away from heavy manufacturing towards flexible R&D space, technology facilities and specialised data infrastructure. "This is no longer steel and smoke," Kassner said. "Modern warfare is becoming deeply digital — and that means defence-specific data infrastructure is becoming a real estate requirement in its own right."
The defence property market remains, in Beyerle's words, a moving target. Yet one conclusion is already becoming clear. Defence demand is accelerating a broader convergence between logistics, infrastructure, energy and data. Facilities once viewed simply as warehouses or industrial buildings are increasingly being assessed through the lens of resilience, security and strategic importance. The opportunity is real. The discipline required to capture it remains unchanged: location, tenant quality, flexibility and honest pricing.