You have just bought a multi-tenanted commercial property. What are some key metrics to calculate to measure the performance of your portfolio?
A WALE (weighted average lease expiry) is a way of measuring the average period in which all leases in a property or portfolio will expire. This term is used by banks, commercial property investors, and valuers.
The WALE is a very important measurement for owners of commercial properties to estimate the vacancy risks. It's a great KPI (key performance indicator) to let the owner know when properties are likely to fall vacant.
The easiest way to measure the weight of average lease expiry is to calculate your tenancy term's remaining value and divide this figure by the sum of the occupied area annual net rent and the vacant area potential annual net rent. Please see the example below:
Tenancy Term Remaining Value (A) $1,000000
Occupied Area Annual Net Rent (B) $150,000
Vacant Area Potential Annual Net Rent (C) $45,000
WALE = A/(B+C) = $1,000000/($150,000+$45,000) = 5.12
The above example gave me a WALE of 5.12 years.
Another way to tackle this is to calculate the tenanted area per property and to multiply by the years of the occupancy. See the example below.
Tenant A occupies 60% of the rentable area (lease expires in 10 years).
Tenant B occupies 20% of the rentable area (lease expires in 2 years).
Tenant C occupies 20% of the rentable area (lease expires in 1 year)
(.6 x 10) + (.2 x 2) + (.2 x 1) = 6.6 Years
Tenant A is my main tenant and occupies 60% of building 1; this larger tenant allows me to have a higher WALE.
The WALE does effect building value, and investors pay more for higher WALEs.
If you're a private-property owner-manager, you should build your spreadsheet to calculate your WALE, or you can run the property analysis report using Re-Leased, which will calculate your WALE for your whole portfolio or for one building.