Britain's new arsenal

For much of the peace dividend, Britain's defence industry looked like an inheritance from an earlier industrial age: submarine yards, weapons plants and secluded government laboratories, generally dominated by a small group of large contractors called primes. That model is not disappearing. But around it a new ecosystem is taking shape, built as much on algorithms, sensors, advanced materials and autonomous machines as on ships, missiles and aircraft.

The war in Ukraine has revealed that technological advantage depends not merely on possessing better equipment, but on improving it faster. Drones are redesigned in weeks. Software is updated between missions. Cheap autonomous systems are deployed alongside complex platforms that took decades to procure. Britain's armed forces are therefore shifting from standalone weapons towards connected “systems of systems”, in which sensors collect data, networks move it, artificial intelligence interprets it, and machines act upon it.

Money is following. The government's Defence Investment Plan, published in June 2026, sets out £297.7bn of spending over the four years to 2029-30. It includes £3.2bn for space capabilities, £2.5bn for the cyber and electromagnetic domain, £1.6bn for the newly created UK Defence Innovation and more than £5bn for autonomous systems, of which £1.6bn is earmarked for drones and battlefield sensing. At least a tenth of the annual equipment programme is to be directed towards novel technologies such as artificial intelligence, autonomy, quantum and directed energy. Industry is matching the mood: Thirteen of the world’s largest defence companies are estimated to have increased their internal R&D spending by more than 25% to $11.6bn from 2021 to 2026.

Private capital has moved faster still. Global venture investment in defence technology reached a record $49.1bn in 2025, up from $27.2bn the year before, on PitchBook's figures. Britain is Europe's principal beneficiary. British defence, security and resilience start-ups raised $2.9bn in 2025 and $9.9bn since 2020, more than any other European country, according to data compiled by Dealroom and the NATO Innovation Fund. Germany, the nearest rival, raised $2.1bn and $5.4bn, respectively.

New pools of capital have formed to match. The British Business Bank's national security investment facility has up to £330m to deploy by 2029-30; the multinational NATO Innovation Fund runs to €1bn; and specialist British managers such as Osney Capital and MD One Ventures have raised dedicated funds.

What drives the growth

• Funding, public and private
• Technological and scientific advances, particularly in AI and autonomy
• The changing nature of warfare, which rewards iteration over procurement
• Geopolitical tension and the NATO commitment to 5% of GDP by 2035
• Reindustrialisation, reshoring and the pursuit of sovereign capability
• Industrial strategies and regional Defence Growth Deals
• The growth of dual-use technology, which widens the addressable market
• Schemes bridging the gap between early-stage innovation and procurement

The small battalions

For decades, the British defence supply chain complained that the door was shut. Procurement favoured incumbents, timelines ran to years, and a company with 15 employees and a good idea had little prospect of selling to the Ministry of Defence.

The response has been a deliberate reorientation towards smaller firms. The Ministry of Defence has committed to increase its spending with small and medium-sized enterprises by £2.5bn by the summer of 2028, taking the total to £7.5bn. A Defence Office for Small Business Growth, staffed by some thirty people drawn from government, industry and finance, opened in January 2026. UK Defence Innovation, launched in July 2025, consolidates the previously scattered innovation bodies into a single front door with a ring-fenced budget of £400m a year and an explicit instruction to operate at wartime pace. The £16m Defence Technology Exploitation Programme offers grants of up to £500,000 to pair smaller suppliers with higher tiers, and thirteen British businesses have been awarded up to £4m to work with the Ministry of Defence to boost rapid procurement and deliver cutting-edge tech for the UK Armed Forces.

For real estate, this matters. Large programmes produce a handful of very large buildings. A broader base of growing SMEs generates sustained demand for small- to medium-sized units with expansion capacity. 

The academic arsenal

Britain’s appeal as a defence tech hub rests not only on its companies and capital, but also on the depth of its research base. Dstl, the government's defence laboratory, remains at the centre of the research system. Its principal campus at Porton Down will receive part of a £580m infrastructure programme, including a new laboratory for biological-threat research. It also commissions work from universities and businesses, helping convert scientific discoveries into deployable capability.

Around it is a network of more specialised institutions. At the Defence Academy in Shrivenham, Cranfield University combines postgraduate teaching with applied military research. QinetiQ operates testing and evaluation facilities at Boscombe Down, alongside specialist research centres in Farnborough and Malvern. The National Cyber Force’s campus at Samlesbury reinforces Lancashire’s strengths in cyber and aerospace, while the Defence Uncrewed Systems Centre in Swindon could anchor a wider cluster in autonomy. At Harwell, the newly opened UK Space and Defence Gateway adds to an established concentration of space and defence expertise.

Advanced materials have their own distributed network. The £42.5m Defence Materials Centre of Excellence is led by the Henry Royce Institute at the University of Manchester and connects 23 academic, industrial and research partners. These include the Advanced Manufacturing Research Centre in South Yorkshire, the National Composites Centre near Bristol, the Advanced Forming Research Centre in Scotland and The Welding Institute near Cambridge. Together, they provide equipment and expertise for the manufacture, testing and qualification of materials.

To these has been added a new institution. The Defence Universities Alliance, launched in July 2026, binds 35 founding universities to the Ministry of Defence in fields including robotics, cyber security, aerospace and advanced manufacturing. It forms part of a £182m skills package that also includes £80m for additional university and college provision, as well as five Defence Technical Excellence Colleges in Plymouth, Yeovil, Lincoln, Blackpool and Rotherham. Other centres of excellence are in the planning.

Bullets meet bytes: the impact on occupiers

The rise of defence tech is not displacing the old guard so much as forcing it to change. The so-called primes retain advantages that start-ups cannot easily replicate: security-cleared workforces, manufacturing capacity, relationships with government and the ability to integrate extraordinarily complex systems. But the primes are becoming technology companies mainly through buying defence tech businesses, forming joint ventures and drawing start-ups into their supply chains. Airbus, BAE and Lockheed Martin have all expanded their corporate venture arms recently and together the defence primes have participated in a record $4.1bn in venture capital rounds so far this year. Thales plans to buy Exail Technologies, and Lockheed Martin is acquiring Ultra Maritime as well as investing at least $100m in UK and European defence tech companies.

The traffic also runs in the opposite direction, and this is where the property consequences are arguably most visible at the moment. A cohort of venture-backed firms is moving from software and prototypes into physical production and expansion. TEKEVER, an autonomous-systems company valued at more than £1bn, is investing over £400m through its five-year OVERMATCH programme, which is intended to create more than 1,000 highly skilled British jobs. Its footprint spans Southampton, West Wales Airport, Bristol and Swindon. A 254,000 sq ft factory in Swindon will combine offices, prototyping and production of uncrewed aircraft, with nearby airspace used for validation flights, while its Bristol Centre for Autonomy and Engineering will accommodate up to 150 staff working on AI-enabled sensing. Research in Bristol, manufacturing in Swindon, testing further west. The company recently won a contract to deliver the latest spy drone technology to the UK Army.

Helsing, the European defence AI company that raised $1.8bn at an $18bn valuation in 2026, is following a similar path. It is investing £350m in Britain and opened an 18,000 sq ft “resilience factory” in Plymouth in November 2025 for AI-enabled maritime systems. Anduril has established its European headquarters in Britain, with over 100 employees in early 2026, and flies from Llanbedr in Wales. It is establishing a new systems integration lab in London.

The cleared estate

The UK defence tech sector is clustering around the availability of appropriate land and real estate, access to skilled talent, proximity to innovation partners and customers and secure testing sites. These clusters are often outside of the top-tier cities. Swindon is a prime example of this. The town has assembled a genuine autonomy cluster drawn by test airspace, its strategic location, access to skilled labour and the presence of others doing the same thing. STARK’s managing director said the town “is the number one place in Britain for a defence contractor to set up shop”. Clusters of this kind form quickly and then prove very difficult to dislodge.

Regional Defence Growth Deals worth £250m over five years are set to embed other defence tech clusters: £50m for Plymouth as a national centre for marine autonomy, £50m for Scotland in space, maritime and quantum, further deals in South Yorkshire (research, development and engineering of high-grade components and materials), Wales (UAV development and testing) and Northern Ireland (dual-use tech and cyber). Other known defence tech hubs include Bristol and Yeovil, which combine aerospace, composites and engineering. Lancashire has cyber and combat air. Oxford, Cambridge, London and Reading provide software, biotech, space research and venture capital.

The strongest locations will be those that combine:

1. technical and security-cleared talent;
2. universities and specialist research facilities;
3. proximity to military customers and prime contractors;
4. secure and scalable power;
5. appropriate test environments;
6. flexible space that can move from prototype to production;
7. housing, transport and training capacity to support workforce growth.

Beyond location defence tech real estate requirements vary considerably by sub-sector, with property needs shaped by the nature of the activity being undertaken. A common requirement across much of the sector is meeting Facility Security Clearance (FSC) standards, which govern perimeter and physical security, secure internal compartments, insider-threat mitigation procedures, and clear board-level accountability for security risks.

The specific operational requirements then diverge. Software- and cyber-focused businesses typically require highly secure office environments, resilient connectivity, robust power infrastructure with backup capacity, and advanced computing and data storage capabilities. Drone and autonomous systems companies often need a combination of offices, workshops, assembly space and access to secure testing facilities. Space businesses require specialist accommodation, such as cleanrooms, integration halls and precision-engineering environments. Firms focused on advanced materials and defence-related research may require laboratories, specialist ventilation systems and pilot-scale production facilities.

As companies grow, many transition into hybrid facilities that combine research and development, office space, testing areas, manufacturing capability and secure storage within a single location. The precise mix depends on the firm's area of focus, but the trend is towards integrated campuses that can support the full lifecycle of product development, from research and prototyping through to production and deployment.

Conclusion

A degree of caution is warranted. Median valuations in the sector tripled in a year, to $146m, against $22.8m across venture capital generally, prompting fears of a bubble. Close to 60% of the money has gone into drones, where five of the sector's unicorns now compete for overlapping requirements. Some of these companies will not survive to occupy the buildings they have announced.

Announced spending is also not contracted spending. The National Audit Office found a £16.9bn shortfall in the last decade-long equipment plan it examined, and the trajectory towards 3.5% of GDP by 2035 is framed as an aspiration conditional on fiscal circumstances; the near-term path reaches only 2.7% by the end of this decade. Britain's record of converting defence industrial strategy into delivered floorspace is not distinguished.

The sceptics are therefore right about the froth, but wrong to dismiss the tide beneath it. Valuations will fall for some and programmes will slip for others. Yet the strategic forces reshaping the sector are more durable: a more dangerous world, rising defence budgets, the premium placed on sovereign capability and a shift towards technologies that must be tested, built and improved at speed. Britain has an unusual combination of science, engineering, military customers and patient capital with which to capture that growth. The result for defence tech will not be indiscriminate demand for sheds and offices. It will be a narrower, more exacting requirement for secure, powered and adaptable facilities close to talent, research and test environments.

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