Recently I have had more enquiries from people looking to purchase a Commercial property, seeking a higher yield.

The WALE is a term used by Commercial Property Investors and stands for ‘weighted average lease expiry'.

A property’s weighted average lease expiry is calculated based on the length of all leases within the property, but it is also weighted in terms of individual tenants. This may mean the WALE is adjusted according to each lease space and how much this accounts for within the property, or how much the rental payments contribute to the whole income from that property.

Some investors look for a longer Wale, however some may seek a shorter Wale if they are looking to upgrade or add to the property in the next few years, as shorter leases can actually provide the chance to make improvements, renegotiate lease agreements and position that property within in a higher rental return bracket.

Therefore if a building is leased to a single tenant and the lease agreement expires in 10 years then the weighted average lease expiry (WALE) is 10 years. For multi-tenanted buildings the average lease term remaining of all leases is calculated to estimate the WALE. In a building of two tenancies, each the same size, 8 year lease and 4 year lease the WALE is 6 years.

Valuers typically calculate the WALE on both area and income, but property sales reports typically have only one WALE calculation. The main difference that occurs in the WALE for the area and income is with properties that have tenancies with different areas and rent rates, such as a shopping centre or office building with lower level retail tenancies.

A higher WALE of 5+ years indicates that there may be limited short to medium term vacancies in the building. A lower WALE of 1 to 5 years indicates there may be an increased risk of a multiple vacancies in the short to medium term.

Please get in touch should you have any further questions about WALE

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