Commercial property lease terms fall in pandemic with vacancy risks up

The latest WALE (weighted average lease expiry) figures from commercial property management software company Re-Leased have shown a decline since the start of the pandemic, as business confidence falls.

Re-Leased’s CREDIA platform has provided insight into the WALE data for overall commercial property in Australia, as well as figures for the industrial, office, and retail sectors.

The WALE figure in Australia has fallen from 30.4 months in March 2020 to now just 28.2 months in June 2022, after a low of 27.9 in May.

After multiple lockdowns across Australia over the last two years, WALE figures in the industrial sector have fallen from a high of 29.8 months in April 2020 to a low of 25.8 months in May 2022.

A similar trend can be observed in the office sector, with WALE numbers slumping from 29.5 months in March 2020 to a low of 26.5 months in June 2022. Retail WALE figures have also fallen through this period from 32.1 months to 31 months.

In line with declining average lease lengths, Vacancy Risk for landlords has increased, with 15.1 per cent of commercial property tenants now on rolling agreements. This is up from 11.4 per cent at the start of the pandemic in March 2020.

Vacancy Risk is a measure of the proportion of leases that are ‘rolling’. Tenancies with a rolling agreement and no agreed expiry present a risk to the landlord due to the uncertainty of future occupancy and cash flow.

Vacancy Risk in the industrial sector has risen, with 26.7 per cent of industrial property tenants now on rolling agreements, up from 20 per cent in March 2020.

It’s a similar story in the retail sector, with 11.6 per cent of retailers now on a rolling agreement, compared to 7.6 per cent at the start of the pandemic.

The office sector has also seen a jump in Vacancy Risk, with 10.4 per cent of tenants now on a rolling agreement, up from 8.4 per cent in March 2020.

Tom Wallace, CEO of Re-Leased said “The drop in WALE across all commercial property sectors nationally illustrates there’s been a dampener to business confidence over the past two years, with tenants wary of committing to longer leases due to the ongoing impacts of COVID-19.