Savills Defence Logistics 2025

Executive summary

Europe’s shifting geopolitical landscape, intensified by recent and ongoing conflicts, has underscored the need to strengthen defence capabilities and industrial capacity. This paper examines the implications of rising defence spending on the industrial and logistics sectors

Geopolitical context and defence spending

Recent conflicts across the world have disrupted long-standing assumptions about European security, prompting governments to reassess defence priorities. The UK has pledged to raise defence spending to 2.5% of GDP by 2027, while a new NATO level spending target has been set at 3.5% of GDP. Several Baltic and Eastern European nations are committing over 4% of GDP. This renewed focus on defence investment marks a significant shift in policy and resource allocation.

Industrial and logistical implications

Increased defence budgets will drive substantial growth in industrial and logistics infrastructure. Defence manufacturing demands highly specialised facilities, ranging from research labs and logistics hubs to high-power computing and data centres. This will generate strong demand for industrial real estate across the UK and Europe.

Employment and economic impact

The economic impact is already visible. The UK Ministry of Defence (MOD) spent £52.8 billion in 2022/23 and £54.2 billion in 2023/24, with nearly £30 billion allocated to equipment and services procurement. This spending supported 134,000 UK jobs, many in manufacturing. The Strategic Defence Review (SDR) outlines three potential growth scenarios. Under the most ambitious – 3.5% of GDP – defence spending could support an additional 45,160 manufacturing jobs and 16,970 logistics jobs by 2030.

Real estate market projections

The SDR represents the largest sustained increase in defence spending since the Cold War, with major implications for industrial and logistics real estate. Estimating square metres per billion pounds of spending is complex, but current projections are substantial. If defence spending rises to 2.5% of GDP – an increase of 12.1% by the end of 2027 – we have estimated that direct manufacturing jobs will rise by between 8,550 and 9,600, generating an additional 308,000 to 346,000 sq m of demand. This would represent a more than 10% uplift in industrial take-up compared to 2023 or 2024.

Logistics demand will also rise. The current defence logistics footprint is estimated at 2.4 million sq m. By 2027, an additional 137,000 to 285,000 sq m may be needed to meet direct and indirect logistics requirements. If the UK reaches the 3.0% GDP target, logistics demand could grow by 49,000 to 120,000 sq m annually over eight years. Under the 3.5% scenario, this would translate to an annual uplift of 92,000 to 192,000 sq m.

Combined demand outlook

Bringing together manufacturing and logistics projections:

• By 2027, combined demand could reach 0.44 to 0.63 million sq m.

• By 2034, assuming consistent policy, this could rise to 1.3 to 1.8 million sq m – equivalent to 0.15 to 0.22 million sq m per year.

• If NATO targets are met, demand could increase by 2.1 to 3.0 million sq m, or 0.29 to 0.42 million sq m annually.

Looking to Europe, our analysis of current defence-led manufacturing and logistics employment across Europe, estimates that existing defence spending supports approximately 35 to 40 million sq m of logistics and manufacturing space. Assuming the 3.5% NATO scenario, if member states converge toward that target over the next seven years, we project an additional 37 million sq m of demand.

Conclusion

The UK and Europe’s response to geopolitical instability through increased defence spending will reshape the industrial and logistics landscape. While this presents significant opportunities for growth and employment, it also introduces complex challenges that require coordinated policy and investment.

Introduction

Geopolitical disruptions are necessitating a generational transformation in UK and European defence capabilities and capacity

UK and European defence has moved into a new era. Recent conflicts and shifting political sands across the world have brought into focus the question of how the UK and European countries will deter and, if necessary, defend themselves against aggression from hostile states. Against this backdrop, the UK and European NATO countries have committed to significant increases in defence spending, which will lead to the greatest boosts in defence industrial output since the Cold War.

This ramp-up requires the growth of defence production real estate across the UK and Europe. This will impact other real estate areas, as new research centres, logistics hubs, data centres, testing sites, and business support functions will all be required to support growth in manufacturing output. As the recent CBI-led Defence and Economic Growth Taskforce, drawing on insights from PA Consulting (PA), identified, such a transformation in defence industrial output can be an economic force multiplier across regions in the UK. Alongside the UK, this is particularly true in other countries, such as France, which is renowned for producing high-quality defence capabilities that are exported all over the world.

Savills has worked jointly with PA on this paper. PA is a leading global innovation and transformation consultancy, with a long and proud heritage in the defence sector, offering strategic advice and leading the implementation of solutions to help clients increase industrial performance and capacity. Together, we are well-placed to provide rich insights on the significant challenges faced by UK and European defence industries as they seek to scale, the opportunities offered by taking a place-based approach to the development of new facilities, and the real estate implications across multiple geographies.

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