How to Calculate Weighted Average Lease Expiry (WALE)
A professional tool for commercial real estate investors to determine portfolio risk and valuation.
WALE Calculator
Metric: Years
| Tenant Name | Weight (Area/Rent) | Remaining Term (Yrs) | Action |
|---|
Weighted Average Lease Expiry (WALE)
0.00 Years
Based on total weight of 0
Total Weight (Area/Rent)
0
Total Weighted Score
0
Number of Tenants
0
Chart: Distribution of Lease Weight by Remaining Term
What is Weighted Average Lease Expiry (WALE)?
Weighted Average Lease Expiry (WALE) is a critical financial metric used in commercial real estate (CRE) to measure the average time period until all leases within a property or portfolio expire. Unlike a simple average, WALE accounts for the size or value of each tenant, giving more "weight" to larger tenants or those paying higher rent.
This metric is essential for property owners, Real Estate Investment Trusts (REITs), and investors because it serves as a key indicator of income security. A higher WALE suggests a stable, long-term income stream, while a lower WALE indicates a higher risk of vacancy in the near future.
Common misconceptions include confusing WALE with WAULT (Weighted Average Unexpired Lease Term). While often used interchangeably, the distinction typically lies in the weighting factor: WALE is often weighted by income, while WAULT might be weighted by area, though regional conventions vary.
How to Calculate Weighted Average Lease Expiry: The Formula
To understand how to calculate weighted average lease expiry, you must first determine your weighting factor. This is usually either the Net Lettable Area (NLA) or the Gross Rental Income.
The mathematical formula is:
WALE = Σ (Remaining Lease Term × Weighting Factor) / Σ (Total Weighting Factor)
Where:
- Remaining Lease Term: The number of years from the current date until the lease expiry date.
- Weighting Factor: The square footage/meters occupied by the tenant OR the annual rent paid.
Variables Table
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| Term (T) | Time until lease ends | Years | 1 – 15+ Years |
| Weight (W) | Importance of tenant | Sq Ft, Sq M, or Currency | Varies by Property |
| Weighted Value | Product of Term and Weight | Unit-Years | Calculated Value |
Practical Examples (Real-World Use Cases)
Example 1: Small Office Building (Weighted by Income)
Consider an office building with 3 tenants. We want to calculate the WALE based on annual rental income.
- Tenant A: Pays $100,000/yr, 5 years remaining.
- Tenant B: Pays $50,000/yr, 2 years remaining.
- Tenant C: Pays $200,000/yr, 10 years remaining.
Step 1: Calculate Weighted Values
- Tenant A: $100,000 × 5 = 500,000
- Tenant B: $50,000 × 2 = 100,000
- Tenant C: $200,000 × 10 = 2,000,000
Step 2: Sum the Totals
- Total Income: $350,000
- Total Weighted Value: 2,600,000
Step 3: Divide
WALE = 2,600,000 / 350,000 = 7.43 Years.
Example 2: Industrial Warehouse (Weighted by Area)
An industrial park has two major tenants occupying space measured in square meters.
- Logistics Co: 8,000 sqm, 3 years remaining.
- Manufacturing Inc: 2,000 sqm, 12 years remaining.
Calculation:
((8,000 × 3) + (2,000 × 12)) / (8,000 + 2,000)
(24,000 + 24,000) / 10,000
48,000 / 10,000 = 4.8 Years.
Even though Manufacturing Inc has a long lease, the WALE is low because the Logistics Co occupies 80% of the space with a short term.
How to Use This WALE Calculator
Our tool simplifies the complex math involved in determining your portfolio's expiry profile.
- Identify Your Metric: Decide if you are weighting by Area (sq ft/m) or Income ($). Use consistent units for the "Weight" column.
- Enter Tenant Details: For each lease, input a name (optional), the weight value, and the remaining term in years.
- Add Rows: If you have more than 3 tenants, click "+ Add Lease" to expand the table.
- Review Results: The calculator updates instantly. The "WALE" figure is your primary metric.
- Analyze the Chart: The bar chart visualizes which lease terms are dominating your portfolio's weight.
Key Factors That Affect WALE Results
Several financial and market factors influence the outcome and interpretation of your WALE calculation:
- Tenant Concentration: A single large tenant with a short lease will drastically reduce the WALE of the entire property, increasing risk.
- Lease Renewals: Successfully renewing a major lease resets its term, instantly boosting the WALE and property valuation.
- Vacancy Rates: Vacant spaces have a term of 0. High vacancy dilutes the WALE if vacancy is included in the area weighting (though typically WALE is calculated on occupied space).
- Market Rent vs. Contract Rent: If calculating by income, below-market rents might under-weight a tenant's importance relative to their physical footprint.
- Break Clauses: Leases with early termination options (break clauses) are often calculated to the break date rather than the expiry date, reducing the effective WALE.
- New Developments: Pre-lets on new buildings often have long terms (10-15 years), significantly increasing the WALE of a development portfolio compared to stabilized assets.
Frequently Asked Questions (FAQ)
What is a "good" WALE score?
Generally, a WALE of 5+ years is considered stable for commercial offices. Industrial assets often target 7-10 years. A WALE under 3 years is considered short and may require active asset management to renew leases.
Should I calculate WALE by Income or Area?
Investors usually prefer Income (Rent) because it reflects cash flow security. Property managers may use Area to understand physical occupancy risks.
Does WALE include vacant units?
Typically, no. WALE is a measure of existing leases. However, for valuation purposes, an appraiser might model the property assuming vacancies are leased up, but that is a different metric.
How does WALE affect property valuation (Cap Rate)?
There is an inverse relationship. A higher WALE usually lowers the risk premium, potentially compressing the Cap Rate (increasing value). A low WALE increases risk, often expanding the Cap Rate (decreasing value).
What is the difference between WALE and WAULT?
Functionally, they are the same formula. WALE (Weighted Average Lease Expiry) is common in Australia and Asia. WAULT (Weighted Average Unexpired Lease Term) is common in the UK and Europe. In the US, it is simply referred to as "Weighted Average Lease Term".
How do I handle month-to-month leases?
Month-to-month leases are typically assigned a very short term (e.g., 0.08 years or 1 month) or treated as expiring immediately, which negatively impacts WALE.
Can WALE be negative?
No. The remaining term cannot be less than zero. If a lease has expired, it is either renewed, the tenant is on holdover, or it is vacant.
Why is WALE important for debt financing?
Lenders look at WALE to ensure the rental income will last longer than the loan term. They often require the WALE to exceed the loan maturity date.
Related Tools and Internal Resources
- Commercial Real Estate Valuation Guide – Understand how WALE impacts your property's market value.
- Cap Rate Calculator – Calculate the capitalization rate using your net operating income.
- Net Effective Rent Calculator – Determine the true value of a lease after incentives.
- Loan to Value (LTV) Explained – Learn how leverage interacts with lease terms.
- DSCR Calculator – Ensure your property income covers debt obligations.
- Real Estate IRR Guide – Calculate the long-term profitability of your investments.
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