WALE explained in one line: the weighted average lease expiry is the average time left on the leases in a building, weighted so that the bigger tenancies count for more than the smaller ones. It is one of the first numbers a commercial buyer, a valuer or a lender will ask for, and one of the most commonly misunderstood by owners who have held a property for years without ever needing to quote it.
How it is calculated
Take each tenancy, multiply the time remaining on the lease by that tenancy’s weighting, add them up, and divide by the total weighting.
The weighting is usually income, sometimes area, and the two do not give the same answer.
Take a hypothetical building with three tenants. Tenant A pays $120,000 a year with five years to run. Tenant B pays $80,000 with two years. Tenant C pays $50,000 with one year. Total income is $250,000.
Weighted by income: (120,000 x 5) plus (80,000 x 2) plus (50,000 x 1) equals 810,000. Divided by 250,000, that is a WALE of 3.24 years.
Now weight the same building by area, with A at 500 square metres, B at 400 and C at 300, so 1,200 in total. (500 x 5) plus (400 x 2) plus (300 x 1) equals 3,600. Divided by 1,200, that is 3.0 years.
Same building, two defensible answers. Which is why the first question to ask about any quoted WALE is how it was weighted.
WALE to expiry, or to break?
The second question. A lease with five years to run but a tenant break at year three is not five years of income.
A WALE calculated to expiry flatters the property. A WALE calculated to the earliest date the tenant can leave is the honest number. Buyers who are paying attention will run both.
Options to renew held by the tenant are not term either. An option is a right the tenant may or may not exercise, and pricing a building as though every option will be taken up is optimism rather than analysis.
Why it matters
It is a proxy for how long the income is secure. A longer WALE usually means a lower risk premium, which usually means a sharper yield and a higher price.
Lenders care for the same reason. Debt terms on a property with a WALE shorter than the loan term are a different conversation from one where the income comfortably outlasts it.
And it sets the timetable for the work. A property with a WALE under two years is one where the next twelve months are about renewals, not about anything else.
Where WALE misleads
It says nothing about who the tenants are. Seven years to a business with no covenant behind it is worth less than three years to a national operator with a parent guarantee. A number that treats those as the same is not measuring risk, it is measuring time.
It hides concentration. A single tenant building with four years to run has a WALE of four and a cliff at the end of it. A five tenancy building with a WALE of three, staggered, has no cliff at all. The second is usually the safer asset despite the lower number.
It ignores whether the rent is sustainable. A long lease at a rent well above market is a long wait for a reversion downwards, and a buyer will price that even if the WALE looks good.
Improving it before a sale
The honest ways are the slow ones. Renew tenants early rather than at expiry, and pay for term with a sensible incentive. Stagger expiries when you are negotiating renewals rather than letting them cluster. Strengthen covenants by asking for guarantees at renewal, since a stronger tenant on the same term improves the quality of the WALE even though the number does not change.
The dishonest way is to renew everyone on short terms just before a campaign, which is visible to any buyer who reads the tenancy schedule and tends to cost more credibility than it buys in yield.
The short version
WALE is the weighted average of the time left on the leases. Ask how it was weighted and whether it runs to expiry or to break. Read it alongside the covenants and the expiry profile, because on its own it can flatter a single tenant building and undersell a well staggered one.
If you are holding commercial property in Perth and are not sure whether your expiry profile is helping or hurting you, that is exactly the sort of question our commercial advisory service is for, with no transaction attached to it.
This article is general information and not advice.
