Why Europe’s industrial revival is just getting started

The opportunity goes far beyond defense

While many have fixated on Europe’s defence rearmament as the big story for industrials, I believe the opportunity is broader and more structural. 

Europe’s new Made in Europe umbrella policy, enacted via the Industrial Accelerator Act, and the UK’s modern industrial strategy, mean industrial real estate isn’t just a sideshow – it’s central to our economic future.

An insightful Macro Bytes podcast hosted by Paul Diggle, our Chief Economist, where he interviewed Neil Shearing from Capital Economics on ‘global fragmentation’, cemented my thinking about the real-life implications of a fragmented global system for European production. I concluded that the impact would be tangible – and investable.

But a theme is worthless without evidence. European industrials delivered as much as 40% annualized returns in the early stages of the pandemic, compared with 25% for logistics warehouses. But this wasn’t a one-hit wonder: over the 15 years to 2025, smaller industrial and manufacturing assets returned 9.5% per year versus 7.7% for logistics¹.

Policy is powering demand

So what makes me think the trend can last? Policy is the transmission mechanism from which theory will transition into reality on the ground, and I’ve watched policy gradually catch up with Paul and Neil’s views of the world. Over the past year or so, Europe’s top policymakers have openly tied economic resilience to rebuilding domestic industries. The EU’s Made in Europe drive to lift manufacturing to 20% of GDP by 2035 encapsulates the new mindset. I have calculated that achieving this goal would mean constructing around 20 million square meters of new industrial and logistics space annually for a decade – roughly the area of one-and-a-half Heathrow Airports each year. This is in addition to what’s already being built just to tread water. That’s extraordinary.

This is only the beginning

And it’s not just backed by one policy. From defense and energy to semiconductors and pharmaceuticals, Europe is rewiring its economy. defense rearmament alone could spur an estimated 37 million square meters of extra industrial demand².  But I think broader reindustrialization requires around five times more space than that. Combine that with ecommerce demand in Europe that is forecast to be 10 million square meters per annum over the next five years, and the tailwinds behind industrial and logistics real estate look stronger than ever.

Big scope; short supply

The real prize for investors is the breadth of what ‘industrial’ now means. It’s not just giant warehouses for online shopping or dilapidated sheds with a guard dog chained-up outside. It’s high-tech workshops, clean-energy manufacturing plants, defense facilities, pharmaceutical production sites, cold storage, and the supply-chain infrastructure needed to support a more self-reliant Europe. These facilities are in short supply³. That shortage, combined with necessity and increasingly powerful policy support, is why I see industrial assets as future outperformers.

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