If you drove through northern Germany on a cold February morning this year, you might have stumbled across something that doesn’t quite fit the narrative of a country in industrial decline. In Flensburg, executives from defense manufacturer FFG gathered with local officials to break ground on "Werk 3," a new production facility that will expand the company’s capacity to manufacture military vehicles. In southern Germany a few weeks later, pharmaceutical manufacturer Vetter Pharma began work on a major expansion designed to increase sterile injectable drug production.
These projects point to an important shift taking place within German manufacturing. Despite weak economic growth, high energy costs and growing international competition, companies are still committing significant capital to new production capacity. However, the bigger question is: are these investments happening at a sufficient scale to maintain Germany’s position as one of the world’s leading industrial economies? The macroeconomic picture remains challenging. Germany’s GDP grew by just 0.2% in the second quarter of 2026 compared with the previous quarter, and by only 0.6% compared with a year earlier. Growth across the wider euro area was similarly subdued. These figures reinforce an increasingly familiar narrative around German industry: output is struggling, energy costs remain high and manufacturers face growing competition from Asia and North America.
Germany’s factory construction has declined substantially since the end of the previous decade. Our Manufacturing Building Stock Database records around 394 new manufacturing facilities in 2019 and forecasts this figure will fall to approximately 248 in 2026. Construction activity is then forecast to recover gradually, reaching around 274 facilities in 2030. However, this would remain well below 2019 levels. Facility numbers alone do not capture the full picture. Germany may be building fewer factories, but several projects involve significant investment in strategically important, high-value industries. Capital is increasingly flowing into semiconductor fabs, pharmaceutical plants, defense production and hydrogen-based steelmaking. Germany aims to build its next phase of industrial competitiveness around these sectors.
The question, therefore, is not simply whether Germany is still building factories. It clearly is. The more important question is whether the scale and composition of this industrial transition will be enough to offset slower overall factory building growth and maintain Germany’s competitiveness in the global manufacturing landscape.
Six megatrends are shaping demand for manufacturing space in Germany
When we look through the 200+ largest factory projects currently under construction in Germany, some clear trends begin to emerge. Rather than being spread evenly across the economy, investment is increasingly concentrated in a handful of strategic industries: electric vehicles and battery manufacturing; aerospace and defense; semiconductors; life sciences; and the decarbonization of heavy industry account for a significant share of the country’s largest industrial investments. At the same time, manufacturers are beginning to rethink how factories themselves are designed, with projects such as BORA’s Vertical Factory demonstrating how companies are making more efficient use of increasingly scarce industrial land.
Together, these projects point to a broader transformation of Germany’s industrial base. While today’s macroeconomic indicators suggest a slowing economy, companies continue to invest billions of euros in manufacturing facilities designed to operate well into the next decade.
1. Accelerating investment in electric vehicle and battery manufacturing
BMW’s €600 million [GB2.1]($692M) high-voltage battery assembly plant in Irlbach-Straßkirchen is nearing completion, with series production expected to begin in late 2026. The investment demonstrates that Germany continues to attract significant spending in EV and battery manufacturing, but it comes against a much more challenging backdrop for the country’s automotive industry. German manufacturers are facing weaker demand, cost pressures, and intensifying competition from Chinese EV producers, while companies including Volkswagen and Porsche have announced restructuring measures and production adjustments. BMW’s investment therefore raises a broader question: are projects like this large enough, and happening quickly enough, to secure Germany’s position in the transition to electric vehicles? With Chinese manufacturers simultaneously expanding production capacity elsewhere in Europe, individual projects provide encouraging signs of investment, but are not yet evidence that Germany is winning the wider EV transition.
2. Building the next generation of aerospace and defense production facilities
Germany’s aerospace and defense sector is entering a new investment cycle, with manufacturers expanding production capacity to meet growing European defense spending and rising aircraft demand. Deutsche Aircraft is investing around €100 million ($115M) in a new final assembly facility in Leipzig to produce the D328eco regional aircraft, while Diehl Defence is constructing a €250 ($288M) million innovation and development center in Überlingen to accelerate the development of next-generation missile systems. HENSOLDT is expanding its production facilities in Ulm and Oberkochen to increase output of advanced radars and air-defense sensors, and FFG is investing more than €75 million ($86M) in its new facility in Handewitt to double production capacity for military vehicles and support major Bundeswehr programs.
3. Expanding domestic semiconductor and chip production
Chipmakers are making some of the largest manufacturing investments currently underway in Europe. The ESMC joint venture between TSMC, Bosch, Infineon and NXP is constructing a new semiconductor fab in Dresden, while Infineon is expanding its Smart Power Fab to increase production of power semiconductors for automotive and industrial applications.
4. Growing investment in life sciences and pharmaceutical manufacturing
Germany continues to attract major investment in pharmaceutical manufacturing as companies expand domestic production of advanced medicines and biologics. Daiichi Sankyo, Eli Lilly and Vetter Pharma are investing billions of euros in new facilities for antibody-drug conjugates, injectable medicines and aseptic drug manufacturing. These projects not only strengthen Germany’s position as a leading pharmaceutical manufacturing hub but also enhance supply chain resilience, improve access to critical medicines, and support long-term healthcare security across Europe.
5. High-bay factories to maximize land use
Manufacturers are also rethinking how factories are built. BORA’s Vertical Factory replaces the traditional single-story layout with a multi-level production facility that combines manufacturing, assembly, logistics, and automated warehousing in one compact building, allowing more production in a smaller footprint.
6. Decarbonization of heavy industry
Industrial companies are investing in cleaner manufacturing technologies to reduce emissions from some of Europe’s most energy-intensive sectors. Salzgitter is replacing conventional steelmaking with hydrogen-based production through its SALCOS project, while EWE is developing large-scale hydrogen production to supply the low-carbon energy needed for future industrial processes.
Will Germany’s industrial transition be enough?
The projects currently under construction demonstrate that Germany’s manufacturing sector continues to attract substantial investment. Billions of euros are flowing into semiconductors, defense, pharmaceuticals, electric vehicles and low-carbon industrial technologies. These investments increasingly concentrate on sectors that combine long-term growth potential with strategic importance for both Germany and Europe.
However, the scale of the challenge remains significant. Our Manufacturing Building Stock Database forecasts that Germany will add around 248 new manufacturing facilities in 2026, compared with approximately 2,560 in the United States, 9,877 in India, and more than 26,000 in China. Germany’s position increasingly reflects that of a mature industrial economy focused on upgrading, modernizing and expanding existing capacity rather than adding large numbers of new manufacturing sites.
As a result, the quality of investment matters more than the quantity of new facilities. Germany is unlikely to compete with China or India on factory volumes. Instead, its competitiveness will depend on its ability to generate greater economic value from a smaller number of highly sophisticated facilities. Current investment patterns suggest this transition is underway. Semiconductor fabs require substantial capital investment yet generate significant output from relatively compact sites. Pharmaceutical manufacturing relies on intellectual property, regulatory expertise and product quality rather than low-cost labor. At the same time, defense production is benefiting from higher European military spending, while investments in automation and digitalization are improving productivity across the industrial base.
This shift places greater emphasis on output per facility. As the chart below illustrates, average manufacturing output per facility increased from approximately $9.1 million in 2019 and is forecast to approach $9.9 million by 2030. This trend supports the transition toward a smaller, more automated and higher-value manufacturing base.
Whether this transformation will be sufficient to strengthen Germany’s industrial competitiveness remains uncertain. High energy costs, demographic pressures and increasing international competition continue to weigh on the sector. Nevertheless, the investments now underway in semiconductors, defense, pharmaceuticals and clean technologies indicate a clear strategic response. The key question for the remainder of the decade is whether rising productivity and higher-value production can offset slower growth in factory construction.
