In the last decade, you could be forgiven for feeling like the rate at which world-shaking events unfold has accelerated. You wouldn’t be alone in feeling this way, with the World Geopolitical Risk Index rebasing from an average level of 105 points between 2001 and 2022 to 135 points over the last three years to 2022. Since the index’s inception in 1990, the only comparable period was the aftermath of 9/11.

With this in mind, Europe has embarked on a generational policy pivot, with near-universal agreement amongst European NATO members to increase defence spending. Even as the US once again pushes for a peace deal between Ukraine and Russia, at the time of writing, rising defence spending seems inevitable. Indeed, questions remain about the reliability of the US security umbrella as the Trump administration takes an increasingly isolationist stance.

We believe the impact of increased defence spending will be felt in three key ways by Europe’s real estate markets. The first and second relate to demand, and the third is a significant shake-up in investors’ and institutional landlords’ ESG definitions.

Firstly, we would expect to see a substantial uplift in demand from defence manufacturers, and as a natural follow-on, logistics occupiers. In 2025, we published significant research on the impact of defence spending on the industrial and logistic (I&L) sector — Savills Defence Logistics 2025. Savills estimates that recent commitments to increase defence spending across NATO will drive demand of roughly 37 million square metres (sq m) over the next seven years. Indeed, analysing satellite data, the Financial Times estimates that, as of August 2025, seven million sq m of defence manufacturing space were under construction across Europe. This suggests that more than one-fifth of our predicted increase in demand for logistics space is already happening.

Inevitably, growth in I&L functions will drive demand for growth in their corporate arms. In the South East of England, our agency teams have recorded a marked increase in activity from manufacturing and industry occupiers, who have accounted for 32% and 27% of take-up this year, respectively. It’s worth noting that there will inevitably be other occupier types within these definitions, including pharmaceutical, aerospace and defence, fast-moving consumer goods (FMCG), automotive, and manufacturing. That said, with seven of the top ten defence companies by funding received from the UK MOD operating in the region, it’s reasonable to conclude the two trends are related.

As a result of these shifts in take-up composition in both sectors, attitudes towards defence occupiers are changing. In recent years, many market players have adopted social criteria that exclude tenants from the defence sector on ethical grounds. This appears to be changing, and there are, of course, arguments to be made that the need to expand the defence sector is an existential issue, and as such, this spending is more ethical. Indeed, anecdotally, we are aware of several investors who have changed or are actively looking into changing their ESG criteria as a result.

All of this is to say that, from both an occupier and investor perspective, we believe that defence spending is set to have a substantial impact on the real estate market over the next seven years.

_{Read the articles within Spotlight: European Property Themes 2026 report below}