Short answer: When buying a leased office, read the tenancy profile for the weighted average lease expiry (WALE), when each lock-in ends, the escalation schedule, how much income depends on one tenant, and the tenant's realistic reasons to renew or leave. Together these tell you how secure the stated rental income really is.
Why the rent figure is not the whole story
A pre-leased office is marketed on its current rent and the yield that rent implies. But the value of that income depends on how long it is likely to continue and how it changes. Two assets with the same yield can carry very different risk once you read the lease terms behind them.
WALE: how long the income is contracted
Weighted average lease expiry is the average remaining lease term, weighted by each tenant's rent. A longer WALE means contracted income runs further into the future. For a single-tenant asset it is simply the remaining term, which makes the next point more important.
Lock-in versus lease term
The lease term is not the same as the committed period. The tenant may be able to exit with notice once the lock-in ends. For risk purposes the lock-in expiry is often the more meaningful date, so calculate WALE both to lease expiry and to lock-in expiry.
Escalation schedule
Check the escalation rule and the dates it applies. Map the rent year by year to the end of the lock-in. Also check whether escalation is on rent only or also on maintenance, and whether any renewal is at market rent or a fixed uplift.
Tenant concentration and fit
Note how much rent depends on one tenant and what that tenant uses the space for. A tenant that has invested heavily in fit-out, or for whom the location is operationally important, has more reason to stay than one using generic space.
Documents to ask for
- Registered lease deed and all amendments
- Rent receipts or bank statements showing payment history
- Security deposit details and how it transfers on sale
- Maintenance arrangement and any arrears
- Title and approval documents for the unit
Frequently asked questions
What is a good WALE?
There is no single threshold; it depends on the price you pay and your holding period. The useful test is whether the committed income covers the period you plan to hold the asset.
Is a single-tenant office riskier?
It concentrates risk on one renewal decision. That can be acceptable if the tenant, lease terms and location are strong, but the vacancy scenario should be priced in.
Do the lease documents transfer to the buyer?
Typically the lease and security deposit obligations transfer with the property, but the mechanics should be confirmed by your lawyer.
Related reading: Pre-leased asset due diligence · Investment advisory.