Defensive measures?

In the merry-go-round of international summits - usually a blizzard of "family photos", "one-to-ones" and post-event communiques - it can be very easy to tune out from what is being said and done in whatever luxury resort the world's leaders are meeting in that week. However loud their claims of unity, progress and difficult choices being made, the suspicion remains that these are the talking shops while the hard negotiation and market-moving decisions are made behind the scenes.

But for real estate, where macroeconomic factors and geopolitical machinations are very much a part of capital allocations and investment decisions, these forums have become essential viewing in an increasingly fractured world. This week's NATO summit in Ankara - including the announcements before it and revelations during - was no different, and the implications of the prevailing conditions on real estate are becoming ever more clear.

Before the summit, UK Prime Minister Keir Starmer announced a £15 billion uplift in annual defence spending - not enough in many people's opinion, but also not nothing - as part of rearmament efforts in the face of a more hostile world. European countries further east have been swifter in these efforts, and many are already spending a much higher proportion of GDP on defence, but for the UK this is the first step towards much higher investment in military capabilities.

While none of this is particularly new - the need for higher expenditure has long been understood, and many investors have positioned themselves accordingly - for the first time we are starting to get a detailed picture of what this means in practice for the real estate sector.

[IMAGE: NATO heads of state pose for the traditional "family photo" (c) NATO]

New research from BNP Paribas Asset Management Alts has put a figure on how this increased defence spending will translate into higher occupier requirements in the UK: 32 million sq ft of demand, including 14 million sq ft of new logistics space needed.

This really is just the lower band; the research has based this estimate on military expenditure of 2.7% of GDP - should spending hit 2.9% in 2030 as proposed, heightened real estate demand will reach 35 million sq ft. That the uplift is purely for the UK points to the scale of the opportunity across the continent. With defence spending rising almost everywhere, similar surges in demand can be expected in major markets everywhere.

But there will be challenges too. Demand will not be evenly spread, and existing military hubs will clearly be in a position to mop up the lion's share of take-up. Classified work and the desire for control mean that many defence companies will want to own rather than lease buildings. Specialist facilities will require more expensive fit-outs. And with the growing importance of technology and AI to the military, buildings that weren't traditionally regarded as defence sector assets - think prime offices - will see at least some of this new demand landing in markets that are already constrained by supply.

But in the round, moves to grow military capabilities present not only commercial opportunities for real estate, but also the chance to contribute to initiatives that are vital for European security in a more troubled world. Identifying and capitalising on structural change is one of the fundamentals of successful property investment; as this research shows, the latest such shift has arrived.