Investors Eye Industrial Assets With Shorter WALTs as Capital Costs Rise

Industrial assets with shorter weighted average lease terms, known in industry parlance as WALTs, are becoming more attractive to investors as leases set to roll in the near term increasingly pose the opportunity for “substantial” income gains, according to new research from Newmark.

The firm notes that nationally, market rent growth has “far surpassed” industrial rent increases for deals inked five to ten years ago. Consider a six-year lease signed in 2016 with 2.5% annual escalations: on average, according to Newmark, rents on that lease would be 36% below market rent today – much lower still in markets with the steepest rent growth over the same period. And “on the other hand, assets with a longer WALT, even with significantly below-market rents, have not participated equally in the impressive run-up in values and will not see as much of an increase in basis until market rent can be captured at an extended future date with all its attendant uncertainties,” the firm’s researchers note.