Strategic Sector Signals

A massive uplift in defence spending is underway, with NATO members targeting 3.5% of GDP by 2035. Combined with new EU targets for procuring at least 50% of defence investments from within the EU by 2030, this is directly boosting demand for domestic manufacturing facilities.

Locational choices are driven by strategic factors, including proximity to military bases and specialised labour clusters. Investment is expanding in traditional hubs like the UK, France and Germany, while CEE countries, particularly Poland and Romania, are emerging as major defensive hubs.

Real estate demand spans the full spectrum, with 54% of new facilities created through expansions of existing sites, 16% by converting older buildings, and 26% from new builds. There is also a critical need for centralised logistics hubs and munitions depots, especially along Europe's eastern flank.

Real estate commitments will be a mix of owner-occupied space for specialised production and leased facilities for non-specialised manufacturing and logistics operations and rapidly growing businesses. All spaces will require enhanced security and safety measures.

EU and UK policies are creating enormous demand, with the NZIA setting a goal for European manufacturing to meet at least 40% of the EU's deployment needs by 2030. Government support includes financial incentives, faster permitting for strategic projects, and reduced energy costs.

The European wind power industry is a global leader but must scale up to meet targets, while solar PV manufacturing faces intense competition from lower-cost Chinese imports. Meanwhile, Small Modular Reactors (SMRs) represent a nascent but high-potential technology with European leaders emerging.

Manufacturing is concentrated in specialist clusters. Germany dominates both solar and wind capacity, with other key hubs for wind power in Denmark, Spain, and the UK's North Sea coast. Global SMR technology leaders include the UK and France with production likely be centred in regional hubs designed for off-site factory fabrication.

Real estate needs vary significantly by technology. Production of specialist components requires highly specialised buildings that are typically owner-occupied. In contrast, non-specialist component manufacturing and logistics operations can be accommodated in more conventional industrial buildings on either a leased or owned basis.

The EU's Critical Raw Materials Act (CRMA) sets clear 2030 targets to boost domestic capacity, aiming to source at least 10% of annual consumption from extraction, 40% from processing, and 25% from recycling within the bloc.

Growth in domestic supply will come from three key areas: mining, refining, and particularly recycling. Recycling of end-of-life products like EV batteries represents a huge opportunity, with estimates suggesting it could supply more than the expected demand for lithium, cobalt, and nickel for batteries by 2040.

Facility location is driven by function. Refining facilities are located near extraction sites or ports, while recycling plants are typically co-located with the manufacturing facilities they supply, such as EV battery recycling sites near gigafactories.

While real estate for mining and refining is specialised and owner-occupied, recycling facilities can often be housed in relatively standard industrial assets, creating opportunities for leasehold contracts and investment in modern industrial parks.

The UK and EU have launched comprehensive sector plans to become global life sciences leaders, with initiatives including up to GBP 520 million in UK grants for manufacturing projects, fast-track planning for key sites, and support for R&D. The focus is on onshoring critical elements of the value chain to improve supply chain resilience.

The industry is heavily reliant on specialised clusters, often located near universities and research institutes, which benefit from government support and private investment. While traditional manufacturing hubs in Ireland, Germany and Switzerland remain strong, burgeoning areas include Warsaw and Rome.

Potential US trade tariffs on pharmaceuticals are a key uncertainty for European exporters, threatening to shift new investment towards the US. However, relocating highly regulated and expensive manufacturing operations is a significant undertaking that businesses will not take lightly.

Real estate requirements are for high-quality, specialised facilities. Production sites must comply with Good Manufacturing Practices and are often owner-occupied with long leases of around 15 years due to high fit-out costs. Logistics centres require Good Distribution Practice compliance, including cold storage, and are typically leased.