Definition
The lease term is the length of time a tenant is contractually entitled (and obligated) to occupy a space under a lease—typically measured from the commencement date through the expiration date. Lease term is one of the most important drivers of income durability and rollover risk.
Key Dates to Know
- Lease execution date: when the lease is signed.
- Commencement date: when rent obligations typically begin (can differ from execution).
- Possession / delivery date: when the tenant can access the space (may start earlier).
- Expiration date: when the initial term ends.
- Renewal option windows: time periods when the tenant can extend the lease.
Why It Matters
Lease term affects how stable and predictable your cash flow is. Longer terms can reduce near-term rollover risk but may require larger concessions like TI allowance and free rent. Shorter terms reduce commitment duration but increase the frequency of re-leasing costs such as leasing commissions.
Typical Lease Terms by Property Type
- Office: often 3–10+ years (longer for larger tenants)
- Retail: often 5–10+ years (anchors may be longer)
- Industrial: often 3–10 years (varies by market and tenant)
- Multifamily: typically 6–15 months (short term, high turnover frequency)
Lease Term and Underwriting
Investors model lease term to forecast:
- Rollover exposure: which leases expire in which years and the risk of vacancy or downtime.
- Re-leasing costs: expected TI/LC and concessions at renewal or re-tenanting.
- Rent growth: annual escalations and mark-to-market potential at expiration.
- Financing risk: lenders may prefer longer weighted-average lease term for stability.
Lease Term vs. Weighted Average Lease Term (WALT)
A single lease term describes one tenant. For multi-tenant properties, investors often use WALT (Weighted Average Lease Term) to summarize the average remaining term, weighted by rent or area.
Simple concept
- WALT is higher when large tenants have longer remaining terms, and lower when major tenants are close to expiration.
Example
A property has a major lease expiring in 12 months and several smaller leases expiring in 5+ years. Even if the “average†looks okay, the near-term expiration of the largest tenant can create significant vacancy risk and re-leasing costs.
Common Pitfalls
- Confusing “signed†with “commencedâ€: execution date is not the same as rent commencement.
- Ignoring options: tenant renewal options can change the likely lease length—but aren’t guaranteed.
- Forgetting downtime: lease expiration can be followed by vacancy and buildout time.
- Not modeling re-leasing costs: shorter terms usually mean more frequent TI/LC and concessions.
- Overvaluing long terms: long lease terms can lock in below-market rents and reduce upside.