WAULT

WAULT stands for Weighted Average Unexpired Lease Term and is the weighted average of the remaining lease length in a commercial property or portfolio. The weighting is usually done by rental income, so that a large anchor tenant with five years left carries more weight than a small tenant with ten years left. WAULT is the industry's simplest measure of how stable and predictable the cash flow in a building is.

The calculation is straightforward: for each lease you multiply the remaining term (in years) by the annual rent, add the products together and divide by the total annual rent. The result is expressed in years. Two variants are used side by side: WAULT to break (up to the first point at which the tenant can terminate) and WAULT to expiry (up to the formal expiry of the lease). The difference is largest in the UK market, where break clauses are common. In Norway the difference is smaller, because long commercial lease agreements are more often locked for the whole period, but the difference exists and must always be specified in the market material.

As a rule of thumb, a WAULT above 7 years counts as long and below 3 years as short. The middle segment (3 to 7 years) is the most common in Norwegian office buildings. What counts as "good" varies by segment: logistics and retail often have long leases (10 to 15 years) and therefore high WAULT figures, while flexible office buildings and co-working concepts sit below 3 years. A building with a high WAULT, a strong tenant profile and low vacancy often qualifies for prime yield, while a building with a falling WAULT must be priced with a risk premium, because the buyer has to allow for re-letting, void periods and tenant fit-outs.

WAULT must always be read together with the lease distribution, not in isolation. Two buildings can have an identical WAULT of 5 years, but one has a single tenant with 5 years left and the other has ten tenants spread evenly between 1 and 9 years. The concentration risk is completely different. That is why due diligence reports always show a "lease expiry schedule" alongside the WAULT, where the rental income is plotted against years to expiry, so that you can see how much expires in any given year. A peak in a single year (50% of the rent falling away at the same time) is called a "lease expiry cliff" and is a well-known risk factor.

WAULT is also used as a covenant in loan terms: the bank can require that the WAULT does not fall below an agreed level (typically 3 to 5 years) during the life of the loan. If the covenant is breached, this triggers a demand for extra security or partial repayment. WAULT is also a factor in KPI reporting for institutional owners, together with yield, NOI and vacancy.

In Placepoint you can open the individual building in the property panel and see tenants with lease details where the data exists, so that you can build up the WAULT for your own portfolio based on the current leases rather than an industry average. The Tenant prospecting example shows how you move from the map to a lease overview for a whole area.

How it looks in Placepoint

In Placepoint you find this in Property panel:

From Placepoint's dictionary: WAULT

More information: Eiendom Norge: Market Reports, Akershus Eiendom: Market Report, Newsec: Property Asset Management

English: Weighted Average Unexpired Lease Term (WAULT).

Frequently asked questions

What is the difference between WAULT to break and WAULT to expiry?

WAULT to break measures the time up to the first point at which a tenant can terminate through a break clause. WAULT to expiry measures the time up to the formal expiry of the lease. The difference is largest in markets where break clauses are common.

What counts as a high WAULT?

Above 7 years is typically seen as long and gives low risk. Below 3 years is seen as short and gives higher re-letting and void risk. 3 to 7 years is the most common range in Norwegian office buildings.

Why is WAULT important for valuation?

A long WAULT gives predictable cash flow and a lower capitalisation rate, and therefore a higher market value. A short WAULT means the buyer has to allow for the cost of re-letting, tenant fit-outs and potentially reduced rent on renewal.

Is it enough to look at WAULT on its own?

No. Two buildings with the same WAULT can have completely different concentration risk. You must always read the WAULT together with the lease distribution ("lease expiry schedule") to see whether a large share of the rent expires in the same year.