BNPP AM Alts: Defence spending to reshape European real estate

Justin Curlow, head of Global Research and Strategy at BNPP AM Alts, has released new research highlighting defence spending as an emerging driver for European real estate performance.

Justin Curlow

BNPP AM Alts views Europe's pivot from decades of underinvestment in defence towards greater strategic autonomy as a critical fiscal shift, with significant implications for economic growth, industry, and real assets.

This initial paper, part of a four-part series, examines the macroeconomic and policy context, illustrating how changing geopolitical priorities are leading to sustained increases in European defence expenditure. Future papers will explore specific opportunities within the logistics, research & development, and living sectors, connecting these broad trends to actionable investment insights for real estate investors.

European defence spending is escalating rapidly due to fiscal and geopolitical shifts, with NATO aiming for 3.5% of GDP by 2035. Initially, this spending will primarily benefit capital-intensive manufacturing sectors like aerospace, shipbuilding, and land systems, along with their supply chains. Over time, however, the focus is expected to shift towards R&D, fostering investments in areas such as AI, cyber defence, and advanced communication systems.

While immediate growth might be affected by equipment-led spending and industrial bottlenecks (given that nearly 80% of defence procurement since 2022 has come from outside Europe), a growing political emphasis on domestic sovereignty is creating new opportunities within Europe.

For European real estate, the implications are tangible but specific. Industrial, logistics, and innovation-focused assets, such as life sciences properties, are expected to benefit most directly. Defence clusters in Germany, the UK, and France are anticipated to be the primary beneficiaries of this global defence expansion. Wider property markets will also be influenced by the interplay of economic growth and rising sovereign yields.

Ultimately, this defence rearmament isn't a uniform economic boost but a fundamental reshaping of Europe's economic structure. Investors who grasp the geographical distribution of economic multipliers, the spending composition, and the institutional factors guiding fiscal execution will be best equipped to navigate this evolving landscape.