Weighted Average Lease Expiry

Weighted Average Lease Expiry (WALE) is a leasing metric in commercial real estate that measures the average time until the expiry of leases across a property, weighted by rental income. This metric is synonymous with WAULT (Weighted Average Unexpired Lease Term) and WALT (Weighted Average Lease Term).

Property owners, investors, and managers use WALE to understand the risk associated with the property’s income stream. By assessing the average lease expiry date, stakeholders can strategize on property management, tenant retention, and leasing policies. It is especially relevant for properties in sectors like office, retail, and industrial spaces where lease durations significantly impact financial stability and investment returns.

To calculate WALE:

1. Multiply the annual rent paid by each tenant by the number of years until their lease expires to determine each tenant’s contribution to the total lease term.
2. Sum these individual contributions to get a total weighted lease expiry value for the property.
3. Divide this total by the combined annual rents of all tenants to derive the WALE. This figure represents the average number of years remaining until leases expire, providing insights into the timeline for potential lease renewals or vacancies.

Putting ‘Weighted Average Lease Expiry (WALE)’ in Context

Consider the scenario of Emerald Business Plaza, a newly developed office complex located in the heart of Austin, Texas. This hypothetical property, managed by Summit Commercial Realty, features a total leasable area of 100,000 square feet and is occupied by a variety of tenants ranging from tech startups to established financial services firms.

• Tech Innovate LLC – Leases 20,000 square feet, with 5 years remaining on their lease.
• Green Financial Ltd. – Leases 30,000 square feet, with 7 years remaining.
• DesignMark Graphics – Leases 10,000 square feet, with 3 years remaining.
• Quantum Consultants – Leases 40,000 square feet, with 10 years remaining.

To determine the WALE for Emerald Business Plaza, the calculation would proceed as follows:

• Multiply the current rent by the remaining lease term for each tenant:
  • Tech Innovate LLC: $45 per sq ft x 20,000 sq ft x 5 years
  • Green Financial Ltd.: $50 per sq ft x 30,000 sq ft x 7 years
  • DesignMark Graphics: $40 per sq ft x 10,000 sq ft x 3 years
  • Quantum Consultants: $55 per sq ft x 40,000 sq ft x 10 years
• Sum the total of results from the first step and divide by the sum of current rents:
  • Total Weighted Rent Years = Sum of all products from step 1
  • Total Rent = Sum of Current Rent x Square Footage for all tenants
  • WALE = Total Weighted Rent Years / Total Rent

This calculation helps Summit Commercial Realty evaluate the stability and risk associated with the rental income stream based on the duration of leases held by the property’s tenants. In this hypothetical example, a higher WALE would indicate a more stable income stream, desirable in commercial real estate investment.