You cannot earn a yield from a missile.

The scale behind it is easy to underestimate. Global military expenditure rose 2.9% in real terms in 2025 to reach $2.887 trillion, the highest level ever recorded by the Stockholm International Peace Research Institute (SIPRI), marking the eleventh consecutive year of growth. Over the past decade, global spending has climbed by roughly 41%. The headline rate of increase is actually easing (the 2.9% rise in 2025 sits well below the 9.7% rise of 2024, which was itself the steepest year-on-year real-terms jump since the end of the Cold War), but the composition of the spending is the more telling signal.

The growth is no longer led by the United States. American spending fell 7.5% in 2025 to $954 billion, while China’s rose an estimated 7.4% to around $336 billion, a thirty-first consecutive year of increases. The decisive momentum has shifted to Europe, where expenditure jumped 14% to $864 billion. The five largest spenders (the United States, China, Russia, Germany and India) together accounted for 58% of the world total, but it is the broad-based European acceleration that signals a structural change rather than a temporary spike. NATO’s 32 members spent $1,581 billion between them, some 55% of the global total, and 23 of those 32 cleared the 2.0%-of-GDP threshold on SIPRI’s methodology.

The drivers behind this are not the kind that reverse quickly. The war in Ukraine has reset European defence policy. Perceived American strategic retrenchment has pushed European NATO members toward sovereign capability, the ability to design, build and sustain critical defence equipment at home rather than relying on imports. Between 2021 and 2025, European states more than tripled their imports of major weapons, and Europe now accounts for roughly a third of global arms imports. As Russian arms exports collapsed (down around 64%), procurement space opened across South Asia, the Middle East and sub-Saharan Africa that British and allied suppliers are now competing to fill. That competition shows up in record UK defence exports of about £20 billion in 2025.

The case for industrial capacity has been reinforced by a sequence of recent conflicts that has exposed the limits of existing stockpiles and production models. Ukraine has demonstrated the scale and adaptability of drone warfare; Gaza highlighted the importance of persistent surveillance, urban operations, precision strike and the overlap between military and civilian infrastructure; and the conflict with Iran has brought into stark relief the problem of missile defence and interceptor stocks.

The Iran war has been particularly significant in shaping the current discussion about the economics of defence production. Analysis by the Center for Strategic and International Studies estimated that US Patriot interceptor stocks fell from approximately 2,330 before the conflict to somewhere between 759 and 827, a reduction of roughly two-thirds, while THAAD stocks have declined materially. The issue is not simply the consumption of missiles. It is that sophisticated interceptors cannot be replenished at the speed at which they are used, creating a structural gap between operational demand and industrial output.

European countries can no longer assume American support will be available at the required scale or speed. For the UK the lesson is not to buy more missiles but to build the capacity to make them: energetics and manufacturing plant, test facilities, secure storage, specialist utilities, resilient logistics, and housing for the workforce that runs all of it.

The relevance for property is direct, even if it is not obvious at first glance. Export capacity is fundamentally a question of industrial throughput, and throughput requires physical space such as factories, assembly halls, test facilities, storage, that are built ahead of the order book rather than after it.

The 2025 Strategic Defence Review, led by Lord Robertson and published in June 2025, framed the UK as facing “multiple, direct threats” for the first time since the Cold War and set a posture of war-fighting readiness. On the back of it, the government committed to the largest sustained increase in defence spending since the Cold War.

The instrument that turns that commitment into funded delivery is the Defence Investment Plan (DIP), published on 30 June 2026, which replaces the long-standing Equipment Plan as the practical means of funding the Strategic Defence Review. It spans equipment, infrastructure, skills and the defence estate; its reception was mixed and its funding contested, but its existence confirms the direction of travel, that the state intends to commit capital to physical defence capacity over a sustained period. The trajectory it sets is worth stating precisely, because the credibility of the entire opportunity rests on it.

In 2024/25, total UK defence spending was £60.2 billion, with the Ministry of Defence (MoD) paying £40.6 billion to suppliers, up £3 billion year on year. The government has committed to raise core NATO defence spending to 2.7% of GDP by 2027/28, up from 2.3% when it took office and ahead of the earlier 2.5%-by-2027 target. The DIP set total planned defence spending at £298 billion over the four years to 2029/30, lifting the annual budget from around £54 billion in 2023/24 to almost £80 billion by 2029/30, a real-terms increase of roughly 27% on 2023/24. It added £15 billion of new money, including £1.5 billion secured by Dan Jarvis after his appointment as Defence Secretary following John Healey’s resignation over the adequacy of the funding settlement. Much of the increase, however, is directed towards day-to-day readiness rather than capital investment. For property, that distinction matters: it is capital spending, not readiness, that turns into buildings.

The government has been clear that this is not meant to be public money alone. The then-Prime Minister, Keir Starmer, framed the build-out as a national-economic project as much as a security one: a deliberate effort to draw in private investment, to direct contracts toward British firms, and to widen the supplier base beyond the established primes to reach small and medium-sized enterprises and start-ups. This is the language of a ‘defence dividend’. The government points to the creation of tens of thousands of jobs, a figure the DIP sharpens to nearly 60,000 additional direct and indirect industry roles by the end of the decade, and frames defence as an engine of regional growth and skills rather than simply a cost to be borne. In property terms, a dividend measured in regional jobs is one that has to be housed, in regional factories, workshops, offices and homes.

The previous government had expressed an ambition to reach 3% of GDP on defence during the next Parliament, subject to fiscal conditions. That ambition has not survived the change of leadership that followed. Andy Burnham has become Prime Minister and brought John Healey back into the Cabinet as Chancellor, a notable appointment given Healey’s resignation as Defence Secretary only months earlier over the adequacy of the DIP’s funding. Burnham has declined to commit to 3% by 2030. His argument is that investing first in social welfare and youth unemployment will, in time, free up the fiscal room for the longer-term target, and that the build-out matters as much for the communities it supports as for the capability it delivers: security, in his framing, “is not just about what we build; it is about who builds it, and who benefits from it.” For the property thesis this is less a reversal than a change of tempo. The direction of travel remains expansionary, but the timing and composition of future spending are now more contingent on annual Budgets and political choices.

However, Burnham has been criticised for not yet setting out his agenda for UK defence spending, or how he intends to meet the commitments already laid out, with the Budget only a few weeks away. The belief is that he will recast Labour’s defence policy around jobs, industry and economic renewal, linking it most clearly to re-industrialisation in the UK; he has consistently framed it through a domestic lens. This is a positive framing for property, because a government that justifies defence spending by what it builds at home has a stake in the factories, the skills and the housing, not only in the capability. But it does hold its own risks. He has made explicitly clear that national security “can’t come at the expense of social security”, which is to say that where the two compete for the same money, defence is the one expected to give way.

The public mood explains the framing. Support for increased defence spending fell from 48% to 37% between March and May 2026, according to Ipsos, with half the public opposed to paying for it through higher taxes and 45% opposed to cuts in other services. Yet 73% of the general public back defence investment that creates jobs and work opportunities. Re-armament sold as security is a hard argument; sold as re-industrialisation, it is an easier one.

The emphasis on who builds and who benefits also gives the new government a reason of its own to favour UK-sited capacity and regeneration in defence towns, which sits naturally alongside the regional-regeneration and workforce-housing dimensions already central to this analysis. It has, however, retained the longer-term NATO commitment agreed at The Hague in 2025, under which members are expected to reach 5% of GDP on defence and security-related spending by 2035. For the UK, that is structured as at least 3.5% on core defence and up to 1.5% on wider security and resilience. That 1.5% resilience limb deserves emphasis, because it is where defence spending touches real estate most explicitly. Its scope includes critical-infrastructure protection, civil preparedness and, in the government’s own words, “strengthening the defence industrial base.” This is not abstract. This is a funded commitment to invest in the physical and industrial capacity that underpins national security, much of which is, ultimately, buildings and land.

Two features of the UK commitment make it especially significant for property investors. The first is its durability: this is a long-dated trajectory reinforced by NATO commitments, rather than a single annual budget line. Its delivery is still subject to programme choices, fiscal constraints and political decisions. The second is its composition. The UK directs an unusually high share of its defence budget to capital formation, the limb that funds new physical industrial and research infrastructure rather than salaries and fuel (even if, as noted above, much of the DIP’s new money goes to day-to-day readiness). A new National Armaments Director now oversees a ring-fenced investment budget intended precisely to build sovereign capacity. When a government spends on capital, it spends on things that have to be located somewhere.

Beneath the dividend language sits an uncomfortable truth worth stating plainly: defence spending does not pay its way like other public investment. A pound spent on roads, grids or housing is justified by the growth it generates, and can in principle be measured in productivity, rents or fares. A pound spent on defence buys something else entirely, deterrence and readiness. Much of it sits in reserve, and a great deal of it is built to be consumed. Its return is the war that never happens: the most valuable return imaginable, and the one no investor can ever bank.

This is the hinge of the whole argument. You cannot own a deterrent, and you cannot earn a yield from a missile. But the re-armament has to be designed, built, tested and housed somewhere, and that somewhere is land and buildings. The investable return does not sit in the spending; it sits in the real estate the spending requires.

That does not mean that every building near a defence site is covered by a government agreement. The strength of the income case depends on the occupier and contract structure: a facility occupied or paid for directly by the MoD is different from one leased by a Prime contractor, a smaller supplier or a speculative scale-up. The common thread is not an automatic sovereign income stream, but demand ultimately linked to government-funded defence programmes.

That return will not be captured equally everywhere. In the UK, three shifts are now happening at once, and it is their overlap that makes the property case.

The first is investment. The state is no longer only buying more equipment; it is paying to build the plant that makes it. The DIP commits £298 billion over four years, and the MoD is co-funding up to six new munitions and energetics factories, contributing up to £45 million or half the cost of each project, with bidding windows running from the third quarter of 2026 to the end of 2027.

The second is location. Sovereign capability is, by definition, capability built at home, and the government’s jobs-first framing points the same way: investment is meant to land on UK sites rather than flow abroad as imports. The market is already responding. The UK has taken the largest share of Europe’s new defence manufacturing facilities since 2024, ahead of Germany and France.

The third is planning. The Planning and Infrastructure Act 2025, which received Royal Assent in December 2025, is intended to reduce delay in nationally significant infrastructure and speed up major development. The revised National Planning Policy Framework, published in August 2026, also gives substantial weight to sites, activities and infrastructure required to maintain and enhance defence capability. Neither is a defence-specific concession, but both may shorten the distance between a funded programme and a building on the ground.

None of these alone are decisive factors. Together they describe a market in which demand is funded, directed at home and increasingly easier to deliver. That positions the UK favourably over other European markets to capture the real-estate element of re-armament: the money is committed, policy insists that it is spent in Britain, and the planning system is being rebuilt to let it land.

If the return sits in the real estate, that leaves one question this piece has not yet asked: who owns the buildings re-armament requires? And Britain has answered it badly once already.

In December 2024, the British state did something unusual: it bought back something it had sold. For roughly £6 billion, the Ministry of Defence (MoD) reacquired around 36,347 service family homes from Annington Homes, ending a legal dispute that had run for years and, by the government’s own account, saving just over £600,000 a day in rent it had been paying to lease back property it once owned outright.

To understand why that transaction matters to anyone thinking about defence and real estate, you have to go back to 1996. That year, the MoD sold its Married Quarters Estate to Annington for about £1.66 billion and leased it back on long terms. It was seen then to be an efficient use of private capital, a way to take a large, illiquid, maintenance-hungry asset off the public books and let a private owner manage it. The National Audit Office later judged that the lease-back arrangement had left taxpayers somewhere between £2.2 billion and £4.2 billion worse off over its first two decades. The Public Accounts Committee called it “disastrous.” And in the end the state simply bought the estate back.

The Annington story is, perhaps, the single most instructive fact in British defence real estate, and is the defining example of how a public-private property deal can go wrong: mispriced risk, asymmetric escalators, residual value handed to the private side, and very little genuine operational risk actually transferred. Its lesson is not that private capital has no role in defence infrastructure. It is that any new partnership must protect public value and align private returns with the long-term requirements of the programme.

Britain’s re-armament is not just a procurement story. It is a place-based build-out of factories, secure facilities, test capacity, resilient infrastructure and workforce housing. This series sets out where that opportunity sits on the map, what kind of asset it actually is, and how it can be financed without repeating the mistake that cost the public purse billions and the model its reputation.

Next in this series: why 39% of MoD procurement goes to ten suppliers, and what that means for where defence property has value.