Strategic Opportunities for Defence Primes in Australia's Defence Divestment

For those who understand Defence's strategic shift towards northern capability-focussed infrastructure, the divestment (partial and complete) of 67 sites announced in the 2024–25 Defence Estate Optimisation Programme is an opportunity to position alongside and within the future architecture of Australia's defence posture.

Media attention has focussed on what sites may be sold, while the sophisticated defence contractor is asking more strategic questions: how can divestment strengthen proximity to retained and emerging infrastructure, create co-location opportunities, enable first-mover advantage, and secure long-term positioning in Defence's supply chain ecosystem?

1. Understanding the Strategic Context

Defence's commitment to reinvesting all divestment proceeds into capability fundamentally changes the risk-reward calculation.  This isn't austerity-driven disposal; it's strategic reallocation aligned with the Defence Strategic Review and the government's focus on northern Australia and advanced manufacturing capability.

For defence contractors, divestment presents a clear strategic roadmap.  Where Defence is divesting, there are adjacency opportunities to acquire sites near retained facilities; and where Defence is reinvesting, there are co-location and high-value proximity opportunities that position contractors at the centre of Australia's sovereign capability development.

A clear example is RAAF Base Tindal (NT), which is receiving substantial funding under force posture initiatives to support enhanced air operations and accommodate rotational deployments.  This creates opportunities in aircraft maintenance, repair and overhaul (MRO) facilities proximate to base operations; secure warehousing for spare parts and munition storage; fuel supply chain and storage capabilities; accommodation and training facilities for contractor personnel supporting Defence operations; and advanced manufacturing facilities for unmanned aerial systems (UAS) and precision munitions assembly.

2. The Defence Contractor Opportunity — Beyond Land Acquisition

The real opportunity is understanding how disposal, consolidation, and reinvestment create value-capture points across the capability lifecycle and how strategic positioning today translates to preferred supplier status in Defence's modernisation programmes.

2.1 Co-location and Proximity Strategies

As Defence consolidates into fewer, more capable facilities, contractors who position close to retained bases gain structural advantages.  Divested sites near major Defence installations offer opportunities to establish maintenance, sustainment and training facilities that reduce response times and enhance integration with Defence operations.

As Defence reinvests in the north, contractors acquiring nearby divested sites are effectively buying future proximity to Defence infrastructure programmes that haven't fully materialised.  Those who move early will be embedded when major investments land, creating barriers to entry for competitors and establishing operational track records that strengthen future tender responses.

Not all divested sites near Defence facilities offer equal strategic value.  Contractors should evaluate sites across several dimensions:

• Logistics proximity: Can the site support just-in-time delivery to retained bases within Defence's operational response requirements? Does the site provide road, rail or port access compatible with Defence logistics networks?

• Security clearance capability: Does the site have existing security infrastructure (perimeter fencing, access controls, communications) that can reduce capital investment for SECRET or TOP SECRET capability? Are existing features compliant with the Protective Security Policy Framework (PSPF) administered by the Attorney-General's Department?

• Workforce accessibility: Can the site attract and retain security-cleared technical personnel, creating labour market advantages that isolated sites cannot replicate? Is there existing workforce housing and infrastructure to support 24/7 operations?

• Regulatory and planning alignment: Does the site have existing Defence-compatible zoning that permits industrial operations, minimising planning approval risks under applicable state and territory planning legislation? Are there restrictive covenants or community expectations that could limit future defence-related activities?

• Utilities and infrastructure capacity: Does the site have power, water, telecommunications and waste management infrastructure capable of supporting high-intensity industrial operations without costly upgrades?

• Strategic alignment with Defence capability priorities: Does the site's location align with known Defence investment areas such as AUKUS submarine infrastructure, northern air bases, or emerging missile manufacturing capability?

2.2 Environmental Legacy and Heritage — The Defence Contractor Advantage

Defence contractors hold a structural advantage over residential developers and institutional investors due to environmental and heritage complexity.  Many sites have operated continuously since World War II or earlier, with industrial activities that create significant environmental legacy issues.

Fuel storage and handling, PFAS firefighting foams, and historical waste disposal practices have left contamination footprints requiring substantial remediation before sites can be repurposed, particularly for residential development.   The cost and timeline for environmental remediation to residential standards can be prohibitive, with soil contamination, groundwater impacts, unexploded ordnance risk, and asbestos adding layers of cost and regulatory complexity.

Heritage considerations compound the challenge.  Many Defence sites contain buildings and structures with Commonwealth, State or local heritage listings.  Victoria Barracks sites, for example, feature significant 19th-century military architecture that carries strict preservation requirements under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) and relevant state heritage legislation.

Defence contractors can leverage this complexity: where residential developers see liability, defence contractors see opportunity.  Continuing industrial defence use eliminates the need for residential-standard remediation, dramatically reducing environmental compliance costs. Contractors with PFAS management experience, security clearances for contaminated site operations, and established relationships with Defence environmental regulators can acquire sites at significant discounts to comparable industrial land, capturing value through use-appropriate remediation strategies.

2.3 Specialised Infrastructure

Defence divestment often includes specialised infrastructure that holds high value for contractors but limited civilian application.  For contractors with existing Defence relationships, early engagement in the divestment process can reveal equipment and infrastructure opportunities before public disposal processes commence.  These include:

• Secure communications infrastructure: Fibre optic networks and SCIF-rated facilities that would cost millions to construct new but may be available as part of site acquisitions.

• Specialised power systems: Uninterruptible power supplies, backup generators, and high-capacity electrical distribution systems designed for technical facilities.

• Hardened storage facilities: Explosives storage magazines, secure vaults, and hardened aircraft shelters that can be repurposed for munitions storage, classified material handling, or high-value equipment protection.

• Logistics and handling equipment: Forklifts, pallet racking systems, and specialised transport equipment rated for Defence loads and security requirements.

• Testing and calibration facilities: Environmental chambers, radio frequency shielded enclosures, precision measurement equipment, and specialised workshops configured for defence equipment maintenance.

• Water and fuel infrastructure: Deep water port facilities, aviation fuel storage and distribution systems, potable water treatment plants, and firefighting infrastructure designed for defence-grade operations.

Early contractor engagement is critical. Defence's disposal processes under the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act) and Commonwealth Property Management Framework often segregate moveable equipment from real property sales. Contractors who engage early — potentially through direct approaches to Defence Estate or through expressions of interest processes — can negotiate bundled acquisitions that capture both land and in-situ infrastructure, maximising value and reducing fit-out costs for defence-related operations.

Look out for the second article in this series where we examine how to structure and manage these transactions — from environmental risk allocation and heritage compliance through to FIRB, tax structuring and legal advisory requirements.

Contact:

Vince Baudille — Partner, Global Co-Head of Real Estate

vince.baudille@twobirds.com | +61 (0) 418 174 311

Jonathon Ellis — Partner, International Co-Head, Aviation and Defence Sector

jonathon.ellis@twobirds.com | +61 (0) 466 415 752

This is the first article in a three-part series examining how defence contractors can capitalise on the 2024–25 Defence Estate Optimisation Programme. The second article addresses transaction structuring and legal complexity. The third examines private equity investment as a financing pathway for site procurement.