Thematic investing

Thematic investing is an investment strategy focused on identifying and benefiting from long-term trends that are expected to shape the global economy, such as technological advancements, demographic shifts or geopolitical realignments.

In the U.S., several commercial real estate markets allow investors to take a thematic exposure to specific industries or ideas. For example, cities like San Francisco, Seattle, and Austin are known for their strong tech industries; and markets such as Boston, San Diego, and the Research Triangle in North Carolina are prominent for healthcare and life sciences.

Defence as a global theme

A theme which has been brewing for decades but is shaping up as an emerging megatrend in 2025 is global defence spending. Under President Trump, the U.S. has called for European countries to step up military commitments from an average of 2% of GDP to 5%. Current spending is approximately US$1.3- trillion by NATO countries and US$2.3 trillion globally, so any meaningful growth off this base will be a needle mover.

In response, the UK has committed to raising military spending to 2.5% of GDP by 2027, with a long-term goal of reaching 3% and the French government has committed to doubling its defence budget by 2030. In Germany, the Bundestag recently voted to reform the 'debt brake,' freeing up €500 billion and allowing more borrowing for critical areas such as defence, and Denmark scrapped a public holiday for higher defence spending.

The Australian response

Australia has also had to make double time and respond. The Australian defence budget is currently around 2% of GDP, or approximately $56 billion, shy of the U.S. administration’s 3% benchmark. The March federal budget, brought forward $1 billion in defence spending and this measure was part of a broader $10 billion increase over the next four years, aimed at boosting military capabilities, including guided weapons manufacture and the establishment of a submarine base in Adelaide.

At the same time as Europeans were scrambling to increase military security in the face of the prospect of wavering US commitment to NATO, Australia has been caught off-guard by a flotilla of Chinese warships circumnavigating the continent and conducting live fire exercises in the Tasman Sea. This has underscored local calls for defence spending to increase to 3% of GDP, which would see the budget increased to $130 billion in a decade – another needle mover.

A growing opportunity

The scale of the defence opportunity is causing investors to take notice. For example, Global X Defence Tech ETF launched in September 2023 and has grown to hold $1.25 billion of assets in just 18 months. The ETF owns shares in stocks such as BAE Systems, Lockheed Martin, and SAAB, and since inception, the fund is up 50%¹.

Interestingly, in Australia all the above tenants, along with global giants Raytheon Technologies, Kongsberg Defence & Aerospace and SNC are all located in Adelaide. Most are clustered in a tight precinct next to the University of South Australia known as Technology Park. The park was established in 1982 and has grown to become a hub for high-tech companies in sectors like defence, aerospace, health, and information communication technology. It is strategically located being approximately 10 kilometres south of Edinburgh Defence Precinct and 20 kilometres east of the naval shipyards at Osbourne.

AUKUS

Defence already contributes approximately $1.7 billion to the South Australian economy - nearly twice the per capita level of any other state. The renewed global interest in national security comes on top of the AUKUS agreement being signed in 2021. AUKUS is a trilateral security pact between Australia, the United Kingdom, and the United States, the centrepiece of which is the Australian navy’s acquisition of three Virginia-class nuclear-powered submarines. Adelaide will play a role in building the subs, educating the workforce and developing the ongoing research and development capability needed to maintain the fleet over the coming decades.

Economic growth and job creation

AUKUS is expected to result in investment of $268-368 billion in infrastructure projects over the next 30 years to construct and operate nuclear powered submarines, as well as to construct new military bases, research facilities, and support services. CBRE estimate that over 10,000 potential jobs may be created by the influx of investments in defence infrastructure, technology and related industries.

Playing the theme

In 2016, DWAPF acquired one of the premier assets in Technology Park to thematically invest in defence and aerospace: 2 Second Avenue, Mawson Lakes. This property is leased to Australian success story, Codan Limited. Codan was established in 1959 and listed on the ASX in 2003. The business manufactures communications equipment and major customers include the US military and NATO. In 2024, its revenues were $550 million, up 225% on 2016 when the Fund purchased the property. Codan has occupied the property since 2015 on a 15-year lease and hold a 10-year option. The campus offers amazing on-site amenity and is in proximity to other defence and technology companies, universities and major naval and air force defence facilities.

The property is valued at $39 million using a cap rate of 7.50%.

^{1 As at 31 March 2025}