UK Defence Sector and Opportunities for Private Capital

Private capital investment in UK defence sector real estate accelerated significantly in 2025. This expansion is underpinned by the UK Government’s commitment to increase defence expenditure -set to rise to 2.5% of GDP by 2027, with an ambition to reach 3% in the next Parliament -together with growing industrial capacity requirements and targeted measures to encourage private sector participation.

The Defence Industrial Strategy 2025 (DIS25) is a pivotal policy development. It introduces a segmented procurement framework designed to expedite delivery and strengthen public‑private collaboration.

This strategic shift is expected not only to reshape defence procurement practices but also generate substantial demand for specialised real estate assets aligned with defence infrastructure needs.

For private capital, this creates new avenues of investment in facilities critical to national security and industrial resilience. Against this backdrop, the legal implications are considerable: investors have to navigate evolving procurement law, national security screening under the National Security and Investment Act, subsidy control rules, the ever-evolving planning regime in England and Wales, and property law frameworks that govern transactions in this sensitive sector.

 

What are the opportunities?

Increased defence budgets are fuelling demand for manufacturing, assembly and supply-chain facilities. Properties close to ports, airbases and transport corridors are particularly significant, as they serve both defence and industrial needs while remaining commercially viable in broader industrial markets.

The UK’s defence agenda increasingly overlaps with cybersecurity, clean energy and advanced materials. Private capital can fund innovation campuses and R&D facilities that serve both defence and civilian applications, aligning with ESG principles while tapping into government-backed growth areas.

Public-private partnerships (PPPs) in the UK defence real estate sector are being used to modernise military estates, unlock private capital and deliver strategically located industrial and logistics facilities that support both defence and civilian needs.

Private investors have been frustrated at the pace and process of public procurement however, the new segmented approach to procurement under DIS25 is designed to tailor acquisition processes to the type of capability, supplier and risk involved. It breaks down procurement into three distinct segments:

• Major platforms
  This segment covers major platforms including tanks, frigates and aircraft. The target is to reduce contracting time from six years to two. These long-term projects require large-scale sites for assembly, storage and testing. This creates opportunities for build-to-suit developments and long leases with the Ministry of Defence or prime contractors.

• Pace-setting modular upgrades
  The second segment covers modular upgrades for communications, sensors and weapons systems. The aim is to reduce contracting time from three years to one. This approach demands smaller, flexible facilities located near existing defence clusters to support rapid upgrades and integration. Relevant real estate assets include logistics properties such as warehouses and distribution centres, which enable efficient storage and movement of critical components. Production facilities for manufacturing defence equipment will also be required, alongside research and development spaces designed to provide high-tech work environments for defence contractors, cybersecurity firms and government agencies.

• Rapid commercial exploitation
  Commercial exploitation such as uncrewed systems, drones and digital software will move on three-month procurement cycles. This will drive demand for short term, high-tech spaces such as data centres, drone testing zones and innovation hubs.

 

Where are the opportunities?

Traditionally, the South West has benefited the most per capita from UK defence spending. However, the DIS25 aims to distribute opportunities more evenly across the UK through initiatives such as:

• Local Growth Plans
  Delivered by Mayoral Strategic Authorities (MSAs), these statutory, locally owned plans will run for ten years and set out how each MSA intends to use its powers and funding to drive long-term regional growth. For investors, this means greater clarity on regional priorities and a predictable framework for engagement.

• Defence Growth Deals
  Targeted at regional strengths in priority sub-sectors, these deals extend beyond defence to include wider government-backed interventions such as skills development, housing, regulatory reform and planning. The first wave of Defence Growth Deals launched in 2025 in Plymouth, South Yorkshire, Northern Ireland, Scotland and Wales. These deals signal where government support will be concentrated, creating opportunities for businesses to align with local clusters and secure an early strategic advantage.

The government has also identified 12 “high-growth potential frontier industry clusters” across the UK. These clusters highlight where innovation and investment are expected to accelerate, offering a roadmap for companies seeking to position themselves in this growing market.

 

Navigating the Procurement Act

Engaging with public procurement processes requires strict compliance, involving intricate regulatory frameworks established under the Procurement Act 2023. However, the Act does introduce specific provisions for defence and security markets that can lead to faster engagement and quicker route to market for investors. These include:

• Direct award capabilities, allowing contracts to be awarded without competition where operational necessity dictates, rather than running a full tender process.
• Contract modification flexibility, enabling adjustments for technology refresh or to avoid capability gaps without publishing a contract change notice or re-running a competitive tendering process.

These measures are designed to streamline procurement while maintaining robust standards, creating opportunities for quicker delivery and reduced administrative burden.

 

Considerations when investing in the UK defence sector

The UK defence sector offers strong investment potential, but it demands sharp risk management. A clear exit strategy is essential, with dual‑use assets (serving both defence and commercial markets) providing resilience and flexibility if defence demand shifts.

While DIS25 aims to speed up the procurement process, investors still have to plan for lengthy contract cycles that impact delivery and cash flow. ESG compliance is non‑negotiable, shaping both procurement eligibility and investor confidence.

Transactions often trigger National Security and Investment Act clearance, bringing potential costs and delays, as well as disclosure obligation. With global defence budgets rising – Germany’s surge being a prime example – the UK faces fierce competition for contracts and manufacturing capacity. Investors should also factor in reputational sensitivities that could be associated with defence sector involvement.

 

Comment

Investors should welcome DIS25 and it signals the UK government’s long-term commitment to strengthening its defence sector, positioning it as one of the most resilient and attractive investment landscapes in today’s market.

The accelerated procurement framework is driving significant demand for specialised real estate and technology infrastructure, while streamlined regulatory processes are opening the door to faster growth and investment opportunities.

From secure manufacturing hubs and strategically located logistics facilities to cutting-edge research centres and modern office spaces, defence-related assets are emerging as a compelling class for investors. These projects offer predictable returns, long-term lease stability, and alignment with national security priorities – making early engagement a decisive advantage.

DLA Piper can support corporate partners by advising on site acquisition, structuring complex transactions and navigating planning and security requirements. We can help clients secure strategic locations aligned with defence procurement timelines and provide guidance on procurement processes. Contact us to explore how we can help you unlock these opportunities.