In brief
- Growth in the UK defence sector is driving demand for manufacturing, R&D and logistics space, but defence occupiers can face particular challenges in the commercial property market.
- Landlord and funder concerns about defence-related uses can affect lease terms and slow the process of securing suitable premises.
- Security, vetting and other sector-specific requirements may also need to be reflected in lease terms that were not designed with defence occupiers in mind.
- Government contracts and procurement cycles can create a further tension between the flexibility occupiers need and the certainty landlords are looking for.
- Addressing these issues early can help occupiers secure property arrangements that work for the way their businesses operate.
The UK defence sector is in growth mode with capital to deploy. Rising government spending commitments, a renewed focus on domestic manufacturing resilience, and a wave of investment in advanced technology, drones and munitions production have sent defence contractors and their suppliers hunting for space, from precision engineering units to secure R&D facilities and logistics hubs. However, defence occupiers are discovering that the commercial property market was not built with them in mind. While the sector is attracting investment and growing, the property market is struggling to adapt to its needs. Key difficulties include:
Landlord nervousness about end use
Many landlords and their institutional funders have ESG mandates, lender covenants or simply reputational caution that make them wary of anything associated with weapons, munitions or military technology - even when the actual activity is benign testing, components manufacturing or software. This can show up subtly: a user clause drafted too narrowly, a reluctance to agree alienation rights, or protracted internal approval processes that slow a deal before terms are even agreed. Because of this, it is crucial from the outset to find a property with a keen landlord and to agree terms that strike the right balance between restriction and flexibility.
Security, vetting and planning complexity layered onto an institutionally standard lease
Defence premises frequently require enhanced physical security specifications, controlled access, vetting of contractors attending site and compliance with government security classifications that go beyond standard industrial, office or tech/lab space leases. These requirements need to be reflected in alterations clauses, service charge provisions, insurance obligations and even rights of entry in a carefully considered way. This demands departure from an institutional landlord's standard form of lease and needs creative, carefully negotiated lease structures rather than off-the-shelf terms.
Government and supply chain dependency creating covenant and term uncertainty
Many defence occupiers rely heavily on government contracts with their own renewal cycles, which sit awkwardly against conventional lease terms, break clauses and rent review structures. Landlords want certainty of covenant and income; defence tenants need flexibility that tracks programme funding and MOD procurement timelines. As the property market is shifting to catch up with demand, there is a growing pool of available landlords that are prepared to work around the needs of the defence sector.
There are some obvious clusters developing that are attracting defence occupiers to meet the Government's ambitions, but a significant amount of additional space needs to be unlocked relatively swiftly. Occupiers need to act quickly and proactively with the right advisers to ensure that real estate demands enhance rather than hinder business growth.
Mishcon de Reya’s Real Estate team advises defence occupiers on the property issues that can arise as they grow, helping clients anticipate landlord concerns, address security and compliance requirements and structure arrangements that work for their business. The Real Estate team is part of Mishcon’s Defence & DeepTech Sector Group, which brings together specialist expertise from across the firm to advise clients operating in the sector. Find out more about Mishcon’s Defence & DeepTech Sector Group here.