UK defence programmes drive €34bn of real estate-linked milestones in Q3

UK defence facilities passed 46 public milestones in Q3 2026, covering funding commitments, planning approvals, construction starts, completions and leases. Together, these announcements represented £28.4 billion(€34bn) of headline programme value and cited 4,550 jobs, according to Knight Frank. 

The figure is dominated by the ten‑year, £26 billion (€31bn) Project Royal Oak programme – the UK’s largest naval infrastructure investment since the Cold War – spanning new docks, waterfront infrastructure, engineering facilities, accommodation and operational buildings across HMNB Clyde, HMNB Devonport and HMNB Portsmouth. The £28.4 billion reflects the headline value associated with each milestone, much of it multi‑year programme funding, rather than new capital committed in the quarter.

The quarterly analysis shows a significant concentration of activity around the UK’s major naval and defence manufacturing hubs. Announcements ranged from new facilities and infrastructure upgrades to operational openings, driving demand for advanced manufacturing space, testing facilities, logistics infrastructure, R&D campuses and highly secure operational environments.

The Autumn Budget closed the £4.7 billion gap in the Defence Investment Plan and committed £5 billion of defence‑focused investment through the National Wealth Fund and British Business Bank. A new alliance with Finland, Poland and the Netherlands could also support greater investment and procurement across NATO allies. The pathway to 3.5% of GDP on defence by 2035 will not be set until the 2027 Spending Review, while the 3% target for 2030 is now official but unfunded.

Regional clusters are emerging as the strongest beneficiaries. The Clyde attracted £15.3 billion (€18bn) of announced investment in Q3, including Project Royal Oak and a UK‑only competition reportedly worth around £6 billion to build three floating dry docks for nuclear submarines, the new Coulport weapons facility and £166 million of accommodation at Faslane. Plymouth followed with £7.3 billion (€9bn), driven by Devonport’s share of Royal Oak, while Portsmouth’s waterfront allocation totalled £3.9 billion. Sheffield and Rotherham recorded five announcements worth £1.4 billion, led by Sheffield Forgemasters, which topped out its new 30,000 sq m machine shop – part of a £1.3 billion MoD‑backed modernisation programme.

Elsewhere, Manchester and the North West strengthened their position as a cyber cluster with plans for a new AI Cyber Security Centre of Excellence. In the South West, Babcock opened a new skills hub at Devonport Dockyard and began construction on a major logistics hub outside Plymouth.

Charles Binks, partner and head of logistics and industrial agency at Knight Frank, said programmes worth £28 billion passing milestones in a single quarter mark a significant shift in how defence is becoming a more prominent driver of real estate activity. He noted sustained demand for specialist industrial and logistics space and the reinforcement of the UK’s key defence locations.

MoD spend with UK industry reached a record £34.1 billion in 2025/26, up 3.2% in real terms, while venture investment in European defence tech reached $7.4 billion in the first nine months of 2026, nearly triple 2025. A White & Case survey of 250 senior UK defence‑sector decision‑makers found 27% planning to invest more than £100 million over the next year and a further 67% between £50 million and £100 million, with three‑quarters planning UK expansion and 97% viewing the UK as Europe’s leading destination for defence tech investment.

This is translating directly into the built environment. Tekever is fitting out the 254,000 sq ft Spectrum Building in Swindon as its main European factory under the £400 million OVERMATCH programme, alongside a Bristol centre for up to 150 staff. Helsing is investing £350 million in Britain, including its Plymouth resilience factory; Anduril has placed its European headquarters in the UK; Lockheed Martin Ventures opened its first office outside the US in London with a $100 million fund; and Isembard opened a 160,000 sq ft global headquarters and precision manufacturing facility in Southwark. The real estate consequence is a more exacting requirement for secure, powered and adaptable facilities near talent and test environments, rather than general demand for sheds and offices.

Emerging defence occupiers have complex, time‑sensitive needs including technical fit‑outs, security accreditation and resilient power. Defence manufacturing requires large, remote, consented sites for munitions and energetics; industrial units with power, floor loading and security for advanced manufacturing and logistics; specialist R&D, test and evaluation facilities; service accommodation backed by the £9 billion ten‑year Defence Housing Strategy; and modernisation of the existing estate.

Skills remain one of the main constraints. ADS estimates direct employment at around 274,000, while Skills England forecasts demand for around 82,000 additional workers in priority occupations by 2035. In September, major defence firms pledged 40,000 training opportunities a year for 18–24‑year‑olds by 2030, rising to 50,000 by 2035.

BAE Systems alone is recruiting 2,300 apprentices and graduates this year. Five Defence Technical Excellence Colleges are being established in Blackpool, Plymouth, Lincoln, Rotherham and Yeovil with £50 million of MoD funding, alongside the Defence Universities Alliance of 35 institutions launched in July. Babcock’s new Skills Centre at Devonport will train up to 1,500 people a year. Each initiative creates its own requirement for training floorspace and accommodation, reinforcing the pull of clusters where occupiers can find the people they need.

Andy Smith, partner at Knight Frank, said defence spending is increasingly influencing where organisations choose to locate and invest. He noted that the convergence of AI and defence is driving demand for highly secure, power‑rich and digitally connected facilities, creating new clusters beyond traditional hubs. As government and industry investment increases, defence requirements are expected to become a growing source of demand across the UK’s industrial, logistics, office and specialist operational real estate.