A.CRE

Weighted Average Unexpired Lease Term

The Weighted Average Unexpired Lease Term (WAULT), also known as Weighted Average Lease Term (WALT) or Weighted Average Lease Expiry (WALE), is a leasing metric in commercial real estate that quantifies the average time remaining on lease contracts across a property’s tenants, weighted by rental income.

WAULT is an essential indicator used to evaluate the risk and stability of income streams from leased properties. It is particularly significant in the assessment of office, retail, and industrial properties, where it helps investors and property managers understand the potential longevity of income and the timing of lease expirations.

WAULT is calculated as follows:

  1. Multiply the annual rent paid by each tenant by the number of years remaining on their lease to calculate the weighted lease term for each tenant.
  2. Sum these weighted terms to get a total weighted lease term for the property.
  3. Divide this total by the sum of annual rents paid by all tenants to find the WAULT. This provides the average period in years during which the leases will continue to generate income under the current contracts.

Putting “WAULT” in Context

  • Project: Metro Office Complex
  • Location: Columbus, Ohio
  • Management Company: Summit Real Estate Management

Scenario

The Metro Office Complex in Columbus, Ohio, features two modern office buildings with a total leasable area of 50,000 square feet. Managed by Summit Real Estate Management, this complex is home to five tenants specializing in technology, finance, and legal services.

The management uses the Weighted Average Unexpired Lease Term (WAULT) to gauge the financial stability and risk associated with the property’s lease agreements, crucial for financial planning and investor reporting.

Details of the Tenants

  • Tech Innovations – Leases 10,000 SF with 5 years remaining. Annual rent: $300,000.
  • Carter Law Firm – Leases 8,000 SF with 10 years remaining. Annual rent: $320,000.
  • Green Design Studio – Leases 5,000 SF with 3 years remaining. Annual rent: $150,000.
  • Quantum Analytics – Leases 12,000 SF with 7 years remaining. Annual rent: $420,000.
  • Fletcher Marketing – Leases 15,000 SF with 9 years remaining. Annual rent: $450,000.

Calculating WAULT

Total lease years weighted by rent: 12,140,000 lease-rent years
Total annual rent: $1,640,000
WAULT: Approximately 7.4 years

Conclusion

With a WAULT of approximately 7.4 years, the Metro Office Complex exhibits a significantly stable lease environment, indicative of long-term tenant commitments and favorable for investors seeking secure investment opportunities.

This scenario is hypothetical and is designed to illustrate how WAULT can be calculated and used in real-world commercial real estate management.

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