The German economy is still in decline. This is also having an impact on the German logistics property market – many companies are taking a cautious approach and extending their leases instead of investing in new projects.
However, momentum is building elsewhere, as the current geopolitical situation with regard to the threat from Russia and the war in Ukraine means that the focus is now on the arms industry. The turning point in security policy and the associated increase in defence spending are giving the defence sector an enormous boost. Germany already recorded a record high in arms exports in 2023, with around 12.2 billion euros. In 2024, this figure rose again by almost ten per cent to over 13.3 billion euros.
At the international level, NATO countries agreed to invest five per cent of their gross domestic product in defence and security in the long term. In spring 2025, the European Commission announced that it would invest around €800 billion in the defence industry, and Germany is also providing significantly more financial resources for defence capabilities through special funds. In some places, support is not only financial. In Bavaria, for example, Minister President Markus Söder recently introduced a new law in October 2025 to promote the defence industry, which is intended to accelerate the establishment of companies from the defence sector – for example, by exempting them from approval procedures or simplifying building regulations. In addition, the Bavarian Development Bank is to provide financial support to defence companies. Söder wants to further expand the Free State's leading role in the defence industry, as major companies in the sector are already based in Bavaria or operate large sites there.
Upturn in the defence sector drives demand for space
Germany plays a key role in defence: its geostrategic location at the heart of Europe makes our country the hub of European defence and its logistical backbone. In the event of defence, Germany is the operational centre of Europe and the main hub for military transport and supplies within Europe – with enormous significance for NATO operations on the continent.
The increased defence funding that is now being made available is driving demand for warehouse and industrial space, as modern storage and logistics capacities are needed for materials, equipment and supply chains. As a result, the growing defence industry is now creating new demand for space on the German logistics property market. The data we collect as part of our Logistics Real Estate Seismograph shows that in 2023, new construction projects for the defence and supplier industry were still below 10,000 square metres. By 2024, the volume of new construction had increased tenfold.
Industry-specific space requirements in the defence sector
The largest new construction project last year was a 60,000 square metre warehouse in Walsrode for BW-Bekleidungsmanagement, a supplier to the German Armed Forces. This shows that the defence industry is very diverse and combines various industrial segments with different logistical requirements. However, the textile sector, with uniforms, helmets and textile protective equipment, accounts for only around four per cent of space users in terms of logistics, light industrial and factory space in Germany. With a share of 43 per cent, manufacturers of defence equipment such as weapons and ammunition, as well as the development and production of armoured tracked vehicles, are by far the largest demand group. The military automotive and aerospace sectors follow with around 15 and 13 per cent respectively. The navy, with its military submarines, naval vessels and above- and underwater technologies, accounts for just under 12 per cent, while the electronics sector, with its simulation and sensor technologies, accounts for around seven per cent.
Positive momentum for the market
The growing demand in this booming industry goes beyond pure storage space and is reflected in long-term location and expansion strategies. Leading corporations such as Airbus, Diehl Defence and Rheinmetall are expanding their factory space, in some cases on a massive scale, which will also further stimulate the supplier market in the long term. In addition, companies could benefit from the growth of the defence industry through business expansion. Rheinmetall, for example, is planning to convert its plant in Neuss. In future, reconnaissance satellites and armoured personnel carriers could be produced at the automotive supplier's plant. The company sees potential here to offset the downturn in the automotive industry and thus also preserve jobs. Companies that are not based in the defence sector are also pursuing this approach. For example, industrial and automotive supplier Schaeffler, one of the world's largest suppliers, recently announced that it would be stepping up its involvement in the defence business. The Franconian company could benefit from Söder's new law, as it is designed to significantly simplify and promote precisely such business expansions.
Logistics service providers can also imagine compensating for economic downturns with orders from the defence sector. They are already proactively addressing the high demands of the industry. As our logistics service provider exchange Logivisor.com has found, at least 80 per cent of logistics service providers are now open to orders from the defence sector. This can be particularly attractive for service providers in the automotive sector, as some processes in the defence sector are similar. This means that new, independent business areas can also emerge here.
For the German logistics real estate market, the defence sector is developing into a long-term demand driver for space that is independent of economic cycles. The industry must prepare for a paradigm shift in which highly secure, self-sufficient and resilient properties that exceed previous standards are in demand. This development could reposition logistics real estate as part of the country's critical infrastructure.
