Weighted average lease term
Also called WALT, WAULT, Weighted average lease expiry.
Weighted average lease term is the average remaining term across a property's leases, weighted by either rent or leasable area. It is the standard single-number summary of how long a commercial property's income is contracted for.
How it works
WALT is quoted constantly and is genuinely useful as a first filter. A property with a 7.8 year WALT has income visibility that a 2.1 year WALT does not, and lenders, buyers and appraisers all price that difference. Long WALT commands a lower cap rate, all else equal.
The weighting basis changes the answer, sometimes dramatically, and the two conventions are both in use. Weighting by area treats every square foot equally. Weighting by rent gives more influence to the tenants paying more, which is usually the right economic view because income, not floor area, is what services the debt. A property with a large cheap warehouse tenant on a short lease and a small expensive office tenant on a long one produces two very different WALTs.
The deeper limitation is that an average conceals distribution. Two properties can share an identical WALT while one has leases expiring evenly every year and the other has everything expiring in a single month five years out. The second is materially riskier and the average cannot see it, which is why WALT should always be read next to the expiration schedule itself.
Formula
WALT by rent = sum of (annual rent x remaining years) / total annual rent- WALT by area = sum of (area x remaining years) / total area
- Vacant space is normally excluded, which flatters a property with high vacancy
- Remaining term is usually measured to lease expiry, not to the next break option, and that distinction should be stated
Worked example
Illustrative. Two tenants: 60,000 square feet at $18.00 per square foot with 3.0 years remaining, and 25,000 square feet at $32.00 per square foot with 9.0 years remaining.
| Tenant A annual rent3.0 years remaining | $1,080,000 |
|---|---|
| Tenant B annual rent9.0 years remaining | $800,000 |
| Total area | 85,000 sq ft |
| WALT weighted by area | 4.76 years |
| WALT weighted by rent | 5.55 years |
Nine and a half months of difference from the weighting choice alone. Whenever a WALT is quoted, the first question is which basis produced it.
The common mistake
Measuring to expiry when the lease has a break option
A ten-year lease with a tenant break option at year five is, for underwriting purposes, a five-year lease with a five-year extension the tenant controls. Reporting a WALT to the outer date overstates income visibility on exactly the leases where it matters most. Compute WALT to the earliest date the tenant can leave without penalty, and if the outer date is also reported, label both. Lenders will do this even if the offering memorandum does not.
Related terms
- Lease rolloverLease rollover is what happens when a lease expires: the tenant renews, or leaves and the space sits empty until a new tenant is found and fitted out. Modelling it means applying a renewal probability, downtime, leasing capital and a new market rent to every expiring lease.
- Rent rollA rent roll is the unit-by-unit or tenant-by-tenant schedule of who occupies a property, what they pay, and when their lease ends. It is the primary evidence behind every revenue assumption in an underwriting model.
- Tenant improvements and leasing commissionsTenant improvements are the landlord's contribution to fitting out a space for a tenant, quoted per square foot. Leasing commissions are the brokerage fees paid on a signed lease, quoted as a percentage of the rent over the term. Together they are the cost of putting a tenant in place, and they are capital, not operating expense.
- Cap rateA cap rate is a property's net operating income divided by its value or price, expressed as a percentage. It is the unlevered first-year yield on the purchase price and the standard shorthand for what a market is paying for a stream of property income.
Every figure, traced to its source
Altyst computes these in exact decimal arithmetic, not with a language model, and clicking any number shows the formula behind it.