W.A.L.E. is a relatively new benchmark adopted by the Australian property investment industry. Obviously, it’s not a mammal, so what does it mean? Simply put, it is yet another benchmark by which to compare investment property value.
The Property Council of Australia defines a WALE as the Weighted Average Lease Term remaining to expire. It can be weighted by rental income or space occupied.
Investors consider security of income as a key element in distinguishing differences in property value, whether residential, industrial or commercial property. Common risk comparisons would typically include factors such as :
- Market leasing demand and supply for the type of space and location
- Physical quality of property asset
- Occupancy status, history, quality of tenants
Investment property with a low WALE typically less than 4-5 years usually have small to medium businesses who commit to leases no longer than 3 to 5 years. A higher turnover of tenants may result in higher costs such as; leasing agent fees, loss of income through vacancy periods, incentive payouts, advertising fees, legal fees, etc. Those with a higher WALE typically have larger corporate tenants whose leases are 5 years or more.
Property marketers may quote WALE based on % space occupied rather than % income. That’s only part of the story. Multiple tenancy property will usually have a range of lease sizes, rental rates and lease terms e.g. a neighbourhood shopping centre with an anchor supermarket tenant and several specialty shops, so it’s prudent to consider the WALE on both % space and % income.
A word of caution …. For some, it can be too easy to get lost in the comparative benchmarks e.g. Net Yield, Reversionary Yield, Discounted Yield, $/NLA, etc, etc.
As a Valuers we consider all sorts of comparative parameters and benchmarks to arrive at a quantum $x end value.
We find an invaluable age-old method is finally to simply sit back after all the research and reflect on that end number, asking ourselves “Given all the information available, is the property really worth that amount?”
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