What is WALE Commercial Property? How is WALE Calculated for Commercial Property?

WALE, or Weighted Average Lease Expiry, is a measure of the average length of time that tenants are expected to remain in a commercial property based on their existing lease. WALE is calculated by taking the weighted average of the lease terms of all the tenants in a property.

WALE is an important factor to consider when investing in commercial property. A longer WALE means that the property will have a more stable income stream, as tenants are less likely to vacate the property before their lease expires. This can make the property more attractive to investors, as it reduces the risk of vacancy.

Conversely, a lower WALE could lower the sale price for an investor as the time to potentially replace a tenant is shorter except when it is anticipated that the rent could be increased upon the lease expiry. The latter situation would then increase the sale price.

There are a number of factors that can affect the WALE of a commercial property. These include the location of the property, the type of property, and the commercial viability of the tenants.

The location of the property is one of the most important factors that can affect WALE. Properties in desirable locations with strong demand from tenants tend to have a longer WALE.

The type of property can also affect WALE. Properties that are in high demand, such as Brisbane or Gold Coast industrial property, tend to have a longer WALE than properties that are in less demand.

The quality of the tenants can also affect WALE. Properties with tenants that have a good credit rating and a history of paying rent on time tend to have longer WALE than properties with tenants that have a poor credit rating or a history of late rent payments. In other words, tenants that are trading well usually commit to longer leases.

WALE can be calculated and expressed in two different ways:

1. WALE on rent – when the average is determined on the rental income
2. WALE on area – when the average is determined over the lettable area

There are a number of online tools that can help you assess the WALE of a commercial property. Or if you are feeling adventurous you could calculate WALE long hand, for example WALE on rent would use the following formula:

WALE = (Lease Term 1 * Rent 1 + Lease Term 2 * Rent 2 + … + Lease Term n * Rent n) / (Total Rent)

Where:

• Lease Term 1 is the length of the first lease
• Rent 1 is the rent for the first lease
• Lease Term 2 is the length of the second lease
• Rent 2 is the rent for the second lease
• Lease Term n is the length of the nth lease
• Rent n is the rent for the nth lease
• Total Rent is the total rent for all the leases in the property

For example, if a property has three tenants with leases of 5 years, 7 years, and 10 years, and the rents are $100,000, $150,000, and $200,000, respectively, the WALE would be calculated as follows:

WALE = (5 years * $100,000 + 7 years * $150,000 + 10 years * $200,000) / ($100,000 + $150,000 + $200,000) = 8.57 years

WALE is an important factor to consider when investing in commercial property. Crew Commercial’s commercial real estate agents and property managers are highly experienced in assessing commercial property and industrial property as potential investments. We invite you to contact us should you wish to discuss your requirements.