UK Defence Investment Plan: What The £15bn Commitment Means For Property

The Government's new military spending programme will drive demand for specialist and logistics assets, create openings for private capital, but raise questions about planning, procurement and energy constraints

In recent weeks, defence spending has risen to the top of the political agenda. The resignation of Defence Secretary John Healey on 11 June revealed deep splits at the heart of government about the funding of the military and, only 10 days later, Keir Starmer announced he was resigning as Prime Minister.

However, in what could be one of the last major policy announcements of the current government, the Defence Investment Plan has now been announced with an additional £15 billion committed to defence spending beyond prior commitments.

The Defence Investment Plan is likely to result in increased demand for property from defence companies and, in turn, from property investors keen to capitalise on that demand. It could act as a major stimulus in certain sectors, particularly industrial, logistics and housing, but the effects are likely to be uneven across different markets.

We see the following trends and themes arising out of increased investment in the defence sector over the coming years:

1. More bespoke and specialist property requirements: Defence companies have highly specialist property requirements (for example, blast-proof structures, high ceilings, 24/7 security, biometric access and secure IT networks). However, the degree of specialism means that the availability of suitable stock and land is limited. Given the time and level of investment required (and the lack of other available stock) for these specialist assets, we expect defence companies will seek longer leases or, where possible, freehold ownership of sites (which would also enhance operational control). 
2. Repurposing of existing buildings given limited stock: The lack of suitable stock and land means that many of the new facilities required will involve conversions or extensions of existing sites rather than new builds. This creates greater opportunities to repurpose existing buildings for use by defence companies, but the extent to which those conversions are viable will depend on issues such as national security and procurement laws, planning rules and construction costs. In particular, we have seen smaller and younger defence sector businesses look to acquire logistics and industrial assets and then seek to add office space or R&D facilities to those sites. Conversely, we have seen larger defence sector businesses explore how they can upscale their office and training centre requirements quickly given the lack of available stock. 
3. Logistics and industrial: Increased production and manufacturing by defence companies in the UK will support demand for logistics and industrial assets generally, especially those near major transport corridors and ports. 
4. Private capital: Given investor demand, we expect there to be greater investment in defence assets from private capital. We also anticipate opportunities for private capital to invest via the public-private partnerships the Government is promoting as part of the Defence Industrial Strategy. It is worth noting that this investor interest is not confined to defence assets themselves, given the wider impact on the property market where large manufacturing hubs or training centres are being created. 
5. Importance of infrastructure: As noted above, defence companies will require access to major transport hubs for efficient supply chains and will need connectivity with suppliers and customers. Defence companies will therefore be reliant on transport and energy infrastructure, which we think will support investment in these areas in the long term (albeit noting that the Defence Investment Plan itself includes a reallocation of funds away from transport and energy projects in order to fund defence investments). 
6. Energy and supply chain tensions: If the Defence Investment Plan aims to build a UK-sourced defence supply chain, then the logistics of advanced manufacturing facilities will come under increased pressure. Noting the reported reallocation of funds away from energy projects to defence spending, there is a tension between the power-hungry demands of advanced manufacturing facilities (not to mention grid reforms), the UK's high energy prices compared to Europe and the rest of the world, and a desire to "buy British".