Europe is spending on defence at a pace unseen since the Cold War. EU member states spent €343 billion in 2024, 1.9% of GDP, and were expected to reach around €381 billion in 2025, an 11% increase, according to ING. At the 2025 summit in The Hague, NATO allies committed to a new target of 3.5% of GDP for core defence by 2035, plus 1.5% for related infrastructure. The composition of budgets is changing as fast as their size: equipment and supply chains, roughly 20% of spending, are projected to reach around 45% by 2029.

That shift from personnel to production is what makes rearmament a real estate story. Tanks, munitions, drones and air defence systems have to be built, stored, maintained and moved. Tobias Kassner of GARBE Industrial estimates that Europe will need between 37 and 74 million square metres of production, logistics and supply-chain space over the next five years.

It is an extraordinary number. It is also the number most likely to mislead investors.

The first correction is accessibility. According to the same industry analysis, only around 20% of defence-related real estate demand will be open to professional investors. Governments and prime contractors will keep direct control of the most specialised assets, such as munitions storage, naval infrastructure and secure production sites, and much of the rest will be built to own rather than leased.

The second correction is scale relative to the market. ING estimates that defence-related demand could represent between 8% and 20% of annual European logistics take-up, with a base case of 14%, or around 0.5 to 1.25 million square metres a year of space available for institutional leasing. That is meaningful in a market where take-up has stabilised well below its 2021 peak. It is not a new market. It is an additional source of demand for an existing one.

The third correction is geography. Defence demand will be concentrated, not spread evenly. ING expects about two-thirds of it in Germany, France and the UK, with the largest absolute increases in southern England, Bavaria, Toulouse, Paris and northern Italy, and outsized growth in Nordic markets, with Gothenburg facing 21% incremental demand by 2035. In Germany, it follows existing industrial clusters: maritime in the north around Wilhelmshaven, Kiel, Hamburg and Bremen; armoured vehicles in the west around Cologne, Düsseldorf, the Ruhr and Kassel; aerospace and sensors in the south around Munich. As one industry voice put it: where there is already something, there will be more.

For the investable part of that demand, the profile is unusual. Tenants backed by government contracts, demand that does not follow the consumer cycle, and leases that can run to 20 years. Financing that was restricted a few years ago has opened up, and the ESG objections that kept many investors away are fading as funds conclude that owning a warehouse is not the same as manufacturing weapons.

Here is what the market underweights. The real estate opportunity in rearmament is not where the defence money is. It is where the supply chain is. Prime contractors will own their critical sites. The leasable demand comes from the second and third tiers: component makers, maintenance providers, logistics operators, testing facilities and the warehouses that hold spare parts and munitions components for years rather than weeks. Those tenants need the same things any modern industrial occupier needs: power, security, motorway and rail access, and space close to the prime contractors’ clusters. That makes defence demand a selective tailwind for well-located, well-powered industrial stock in specific regions, not a rising tide for European logistics in general.

The implications cut both ways. For investors, defence can add long-term, counter-cyclical income to industrial portfolios, but only in the right clusters and with assets that keep an alternative use if procurement plans change. Defence cycles are long, delays are frequent, and a significant share of budgets, such as pensions and personnel, will never translate into space demand. For regions, the map is already being drawn. Spain, which resisted the new NATO target, is not among the main expected beneficiaries; markets in Germany, France, the UK, the Nordics and northern Italy are. For developers, the qualification is technical: secure sites, power capacity and tenants with the contracts to justify a 20-year lease.

Europe’s rearmament will create real estate demand. The investors who benefit will not be those who chase the headline number, but those who understand which fifth of it they can actually own.