Defence Comes Home to Central Europe

For most of the last three decades, defence manufacturing in Europe meant consolidation, not expansion. Production lines closed. Capacity shrank. Governments treated defence budgets as something to trim, not grow. Defence stocks were considered politically awkward investments, and the continent grew comfortable outsourcing both production and, in some cases, strategic dependency to allies elsewhere.

That era is over.

Since 2022, Europe’s defence industry has been rebuilding at a pace few analysts expected. EU ammunition production capacity alone rose from around 300,000 rounds a year in 2022 to an estimated 2 million by the end of 2025, a rate of industrial expansion that the Financial Times has described as three times faster than typical peacetime growth. In Germany, domestic defence orders rose by more than 50% in late 2025 compared with already-elevated post-invasion levels. Rheinmetall, once a mid-sized industrial name best known for automotive components, reported revenues of nearly €10 billion last year, with profits rising sharply and order backlogs stretching years out. Analysts now expect European defence company revenues, in aggregate, to grow by more than 10% annually for the next decade.

None of this is happening evenly across the continent. It is happening disproportionately in Central and Eastern Europe, and the reasons why matter for anyone thinking about where the next wave of industrial capacity will land.

Why the East Is Moving Faster

Geography is the obvious driver. Poland, Slovakia, Hungary, Romania, and the Baltic states sit closest to the war in Ukraine, and proximity has translated directly into urgency. Industry observers describe the region’s build-up as being driven first by that proximity, with speed now the defining constraint: speed to build additional capacity, speed to ramp up what already exists, and speed to bring new defence products to market before the operational need has moved on.

But there is a second, less obvious factor: much of this region has defence manufacturing in its industrial memory. Former Czechoslovakia, Poland, Bulgaria, and Romania were once significant arms exporters, supplying markets across the Middle East, Africa, Asia, and Latin America. That industrial base didn’t disappear so much as go dormant. Rearmament is now reactivating it, and in several cases the underlying engineering knowledge, supplier relationships, and skilled labor pools never fully left.

The scale of the funding behind this shift is hard to overstate. The EU’s SAFE loan instrument makes roughly €150 billion available for defence procurement, with a firm 2030 delivery deadline and Poland positioned as one of the largest beneficiaries. Separately, the European Defence Industry Programme has launched with €1.5 billion for 2026 and 2027, split across industrial reinforcement, common procurement, and shared defence projects, all aimed at expanding manufacturing output and strengthening supply chains across the continent. The 2030 deadline attached to SAFE funding is not a suggestion. Given the lead times involved in both equipment delivery and the capacity investments needed to support it, meeting it will require compressing timelines that, under peacetime procurement rules, would normally take considerably longer.

Some of the clearest signals are showing up at the country level:

• Hungary’s Zrínyi 2026 program has taken a distinctive approach, building re-industrialization from the ground up rather than simply inviting in foreign investment. Its joint venture with Rheinmetall to manufacture the Lynx infantry fighting vehicle gives the Hungarian state a 49% equity stake through a state holding company, not just a hosting role. Hungary has taken a similar approach with Airbus Helicopters, acquiring a direct 30% interest in its plant in Gyula.
• Poland is scaling capacity across armoured vehicles, air defence, and counter-drone systems, and has committed over €2 billion of its SAFE allocation specifically to Ukrainian defence technologies, even as the majority of funding is required to flow to national industry. Poland has also begun developing a mobile anti-drone shield combining sensors, electronic warfare, and interceptor drones.
• Slovakia and Romania are increasingly drawn into supply chains for larger platforms, from vehicle components to engineering and logistics support, as prime contractors look to de-risk single-country dependency.
• Ukraine is being integrated directly into the European defence-industrial base, with production lines for Ukrainian-designed drones already active in Poland, Germany, the Baltics, and the UK, and ten Ukrainian export centers planned for 2026.

It’s Not Just Tanks and Ammunition

One of the more interesting shifts in this rearmament cycle is how broad it has become. Analysts tracking the sector point to at least five distinct areas benefiting from the spending increase, and each pulls on a different kind of industrial and technical capacity.

Drones and unmanned systems have become the fastest-growing segment. The EU’s Drone Defence Initiative, launched in early 2026, aims to build a layered, continent-wide counter-drone shield by 2027. German manufacturer Quantum Systems, whose Vector drone has been combat-tested in Ukraine, has emerged as one of the region’s most prominent players, with both military and commercial revenue growing in parallel. Germany and Ukraine signed a €4 billion defence package in April 2026 that includes joint drone production.

Semiconductors and defence-grade electronics represent an uncomfortable dependency Europe is now trying to close. Modern platforms, from missile guidance units to encrypted communications systems, run on sophisticated processors that the continent has historically imported from the US while outsourcing fabrication to Asian foundries. The EDIP’s industrial reinforcement funding is earmarked in part to address exactly this gap.

Metals-intensive manufacturing is one of the more straightforward beneficiaries. Ships, armoured vehicles, artillery systems, and missile launchers are, fundamentally, made of metal, and analysts estimate that around 40% of Europe’s incremental defence spending will flow into procurement of metals-heavy equipment, roughly double NATO’s typical norm for that category. This is a segment where existing Central European heavy-industry capacity, and the workforces trained to support it, translate almost directly.

Cybersecurity has quietly become a defence-adjacent growth category in its own right. European cybersecurity revenues rose 10% year-on-year through April 2026, with identity and access management, the segment most directly tied to protecting government and military systems, growing at 18%. Because the underlying technology serves both military and commercial buyers, defence spending is pulling broader security investment upward alongside it.

Aerospace manufacturing rounds out the picture, though not exclusively for military end use. GE Aerospace announced more than €110 million in new European manufacturing investment for 2026 alone, including €15 million in Poland for grinding and machining equipment and €8 million in the Czech Republic for precision machining and assembly tooling, alongside workforce development programs reaching thousands of students across the region.

Sovereign Capability Changes the Real Estate Equation

There’s a phrase that keeps surfacing in defence-industry coverage this year: sovereign capability. It refers to the ability to produce critical military technology inside Europe, rather than relying on imports from the US or Asian suppliers. That single shift in strategic thinking has direct consequences for how and where manufacturing capacity gets built.

Defence production isn’t like a standard industrial tenant. It typically involves:

• Heavier floor loads and structural specifications for armoured vehicle and munitions assembly
• Specialized permitting for hazardous materials and dangerous goods, often falling under Seveso-level regulation
• Higher security and access control requirements than conventional logistics or manufacturing space
• Proximity to existing defence-industrial clusters and a skilled, security-cleared workforce
• Delivery timelines measured against hard government deadlines, not typical commercial lease cycles

Governments and prime contractors alike are discovering that the constraint on rearmament isn’t only funding. It’s finding facilities that can be permitted, built, and made operational fast enough to matter. Industry analysts have consistently flagged workforce shortages and supply chain bottlenecks, particularly in electronics and specialized materials, as the practical limits on how quickly capacity can scale, even now that money is no longer the obstacle it once was.

There’s also a structural tension worth naming honestly. Research comparing defence-industrial patterns across Central and Eastern Europe has noted that while these economies are otherwise deeply integrated with Western European capital and supply chains in their civilian industries, they have historically insulated their defence sectors from the same degree of foreign penetration. Hungary’s state co-ownership model with Rheinmetall and Airbus Helicopters reflects this instinct directly. For facility providers and industrial partners operating in the region, this means the most durable role tends to be enabling infrastructure and delivery speed, rather than ownership of the defence-industrial asset itself.

What This Means for Central Europe’s Industrial Map

The countries best positioned to capture this wave share a specific profile: existing industrial infrastructure, a skilled manufacturing workforce, developers with in-house permitting expertise for complex or hazardous-use facilities, and enough available, pre-permitted land to move at the speed the moment demands.

That combination has historically been CTP’s core market, and the defence sector is already present within it. Manufacturers including KNDS, Dynamit Nobel Defence, Safran, Latecoere, Honeywell, and Demgy EIS operate inside the CTPark Network today.

What that work has surfaced is a fairly consistent set of requirements. A permitted land bank close to existing industrial parks. In-house teams that handle zoning and dangerous goods permitting directly rather than outsourcing it. A high-security baseline including stand-alone buildings, controlled access environments, and 24-hour monitoring. Flexible construction that can absorb changes mid-build as technical requirements evolve. And customisation experience spanning clean rooms, electrostatic discharge flooring, and vibration-free laboratories.

Those are the capabilities defence-adjacent manufacturing needs, whether the buyer is a prime contractor, a Tier 1 supplier, or a company scaling into the sector for the first time.

Defence’s return to Central Europe isn’t a temporary spike tied to a single conflict. It reflects a structural decision by European governments to rebuild sovereign industrial capacity for the long term, backed by the kind of multi-year, multi-billion-euro funding commitments that don’t unwind quickly even if the security situation eventually stabilizes. For the region’s industrial real estate market, that means demand for specialized, fast-to-deliver, compliance-ready space is only getting started.

Scaling defence or dual-use production in Central Europe? Book a call with CTP’s local teams, or get the CTP Defence Playbook for five proven plays on speed, capital, compliance, growth, and market entry.