A national Herron Todd White study taking into account re-sale values in today's market shows that increased global economic uncertainty and "credit crunch" has caused industrial yields to soften and the market to contract.

"Our commercial teams in Sydney, Melbourne and Brisbane have been looking at prime and secondary industrial property with a ‘past'  and ‘present'  feel  to  see how yields have altered in this highly competitive industrial landscape," Chairman of Herron Todd White, Gavin Hulcombe, said.

According to Mr Hulcombe, Australia's commercial property market is dictated by numbers where purchases and sales revolve around yields, rentals and capital value.

The Director of Herron Todd White Melbourne, Craig Veljkovic, said that the performance of Melbourne's industrial property market in 2008 has generally been subdued in light of a slowing economy induced by high interest rates in an attempt to contain elevated inflation and the impact of the USA sub-prime crisis.

He said that although the lower end of the market remains steady, the upper end is showing signs of a mismatch between buyers and sellers expectations and whilst at present there is a dearth of recent evidence in the top end bracket, it is likely that a further softening of yields will occur.

"Currently, there appears to be some downward pressure on price at the top end of the market. Consequently, over 2008, prime industrial yields, may, in some cases, soften by as much as 1% whereas secondary grade stock yields may, at times, expand in excess of 1%, relative to 2007. Notably, reasonable rental growth is likely to offset some of the downward price adjustment due from yield expansion," he said.

In Brisbane, similar reports were collected.

"There have been limited investment sales throughout 2008, with owners having purchased during the ‘boom times' choosing to hold the properties through these leaner times in an attempt to maximise profits or minimise any losses on the property," Commercial Director of Herron Todd White Brisbane, Terry Munn, said.

He said that in valuing properties in a similar timeframe, they saw that yields had softened considerably, ranging from 50 to 150 basis points, with the larger softening reserved for secondary properties, or those properties with significantly weaker leasing covenants than when originally valued.

However, on a positive note, Mr Munn said that industrial rents have grown throughout 2008, which has aided in offsetting widespread considerable reductions in value.

Global economic uncertainty had the same effect in Sydney, with Matt Shadbolt, Herron Todd White's Commercial Manager, reporting that the credit crunch has caused a softening of yields across the sector, with prime and secondary properties attracting an indicative rise of 100 and 150 basis points respectively, to approximately 7.75% and 8.5%.

"Yields over the last few years have tightened to a range of approximately 7% to 8% about 18 months ago. At its peak around December 2007, yields were as low as 6.5% with an indicative rate of around 7%. Throughout 2008, yields have softened considerably across all classes of property, to sit around levels seen today, ranging between 7.5% to 8.5%."

Overall, Mr Shadbolt said the Sydney industrial market is contracting as a result of the credit crisis and capital market volatility, with very few transactions recorded in 2008.

Herron Todd White is Australia's largest independent property advisory and valuation firm with 44 offices across the nation and more than 500 staff.