An investor is evaluating a multi-tenant retail property in Edmonton. The property has a weighted average lease term (WALT) of 2.3 years. How does this metric affect the property's value and marketability?
Correct Answer
B) A 2.3-year WALT raises turnover and income risk, typically meaning a higher cap rate (lower value), and may deter lenders and investors
Weighted average lease term (WALT) is a critical metric for commercial property investment analysis. A short WALT of 2.3 years means most leases expire soon, creating risk of tenant departure, downtime, and re-leasing costs. This uncertainty leads investors to demand a higher cap rate (reducing value), and lenders may be more cautious in financing. In Alberta's market, where retail can be affected by oil sector downturns, a short WALT amplifies risk.
Why This Is the Correct Answer
WALT is a standard investment analysis metric used by commercial investors and lenders. A 2.3-year WALT indicates that most leases expire within 2-3 years, creating income uncertainty. This risk is priced into the cap rate — higher risk means a higher cap rate and lower property value. Lenders may require higher equity or shorter loan terms for properties with short WALTs.
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