For a while now we have argued that building defence capability must be as much a reindustrialisation story as a real estate one. The conversations I had at this month's EPRA conference were a reminder of how far that view still has to travel. There is much excitement about artificial intelligence and the scramble to build data centres right now, but not nearly enough about the industrial base a rearming Europe depends on. That balance deserves a shift. The question we should be asking is no longer whether Europe's defence build-up matters to real estate. It is which parts of it we should be watching, and why.

That is worth spelling out, because ‘defence’ is too often treated as a single market. It is not. Two things are happening at once, and while they are closely connected, they are not the same. One is defence industrial capacity: making and sustaining military capability. The other is defence mobility: moving forces, equipment and supplies to where they are needed. Understanding the difference matters, because each places its own distinct demand on what the built environment needs to deliver.

Making it, and moving it

Defence industrial capacity is about production. It takes in the factories, suppliers, technology, skilled people and supply chains needed to design, manufacture, repair, replenish and maintain equipment and other military capabilities. This is the part of the picture I have written about before: the manufacturing and engineering space that lets defence businesses and their suppliers scale up.

Mobility is the other half. It is about the ability to move our forces and their supplies quickly, and to keep them supplied once they move. It relies on transport infrastructure and on having enough logistics capacity to hand: roads, railways, ports, airports, warehouses, vehicles, rail wagons, handling equipment and the services that go with them.

Credible deterrence needs both

For real estate, this is useful framing. Rather than treating defence as one undifferentiated market, we need to watch two sets of signals side by side. On the industrial side, that means new manufacturing investment, factory expansions, ammunition and equipment production, supply-chain localisation, repair and maintenance capacity, and government incentives. On the mobility side, it means new infrastructure: rail, road and port upgrades, strategic logistics corridors, the availability of civilian logistics capacity, and demand for warehousing, staging and transhipment. Importantly, Europe's defence mobility leans heavily on civilian infrastructure and commercial logistics capacity rather than on a separate logistics network, which is why there is now investment going into dual-use infrastructure: assets that can carry both commercial and defence traffic.

It is also worth being clear that within Europe it is NATO that sets the operational requirements, and any serious reading of where demand will land also has to start there.

Different paths to building defence capacity

Although the destination is similar, Germany and the UK are approaching the capacity question from different places.

Britain already spends heavily on procurement, with roughly half of its £62 billion defence budget going that way, and it sits on a well-established, export-led industrial base: shipyards turning out warships and submarines, and the plants behind our combat aircraft, all with healthy order books. The open question there is fiscal rather than industrial. Much of the current noise is about how the numbers add up over time, and that uncertainty is felt keenly down the supply chain. Our counsel to the firms we talk to is a steadying one: concentrate on the spending that is real today and the major programmes already under way that have to be delivered. For property, the read-across is straightforward. More space is needed to make things, from the small, highly specialised engineering firms right up to the large plants that build, for example, armoured vehicles.

Germany comes at it from the opposite direction. The challenge here has never been if Germany can make world-class defence equipment; its industrial base is already sophisticated. The task is volume, ramping up output to stand behind commitments like the seven new brigades it has promised. Helpfully, the buildings are largely there to do it. Years of reshoring and automation have left Germany with a surplus of high-quality industrial space, whereas in Britain a great deal of comparable stock was given over to other uses when manufacturing moved offshore in the 1980s and 1990s.

But one pattern holds for both markets. Defence occupiers put down roots. The long procurement cycles and the exacting technical fit-out these tenants need mean they typically commit for the long term, and once a site is established it tends to pull in suppliers and research partners nearby, so a cluster grows up around it. That is of course an opportunity for firms like us, making for a more durable, lower-churn tenant than we see across much of the portfolio. But it matters well beyond our own returns. Rooted, clustered capability is precisely what a country needs if it is to make, repair and sustain what its forces depend on, and to do so at home rather than relying on others. Keeping that capability anchored is a national interest as much as a commercial one, and providing the space that lets it stay put is a role worth taking seriously.

Reading demand, not just budgets

Reading both sides of capacity and mobility demand is not abstract for Sirius. Our portfolio of business parks across Germany and the UK is worth around €4 billion and is already built to read a light manufacturing, logistics and storage industrial base.

Defence is a deliberate theme for us within that. Over the last year we have put roughly €205 million into properties leased mainly to defence contractors and their sub-contractors. Three of our four defence acquisitions to the end of June were in Germany, and those assets came in at an average gross yield of 8.9%. We aim to double the defence portfolio by mid-2027 and, over time, to take it toward €1 billion alongside a capital partner.

It is also why the experience we have brought in matters. Our Strategic Defence Adviser, retired Major General Angus Fay, spent his military career in logistics, latterly running global defence logistics operations for the UK Ministry of Defence and representing the UK on NATO's Logistics Committee. That is the exact meeting point of production and movement that this moment turns on, and it gives us a way of reading demand that goes beyond the headline budgets and into the practical question of what has to be built, moved and stored, and where.

No capability without space

Europe's defence effort will not succeed on production alone, nor on mobility alone. It needs both, working together, and both come back to real estate. That is the story our sector is still too slow to tell. At Sirius, we intend to keep reading both sides of the defence picture, and to keep providing the space each requires, because capability a nation cannot produce, move and supply is not much of a capability at all.