U.S. commercial property prices plunged for a second straight month in May as distressed transactions weighed, but the pace of decline may signal a bottoming process, Moody's Investors Service said on Monday.

Office, retail and apartment building prices declined 7.6 percent in May from April, compared with a record drop of 8.6 percent in the previous month, according to the Moody's/REAL Commercial Property Price Indices.

The index covering all property types is down 34.8 percent from its peak in October 2007, nearing the range of forecasts of total declines expected by many analysts. The acceleration of recent price drops could mean that the market will soon find a bottom, Moody's analysts said.

There are two things that we would need to see to more definitively to say we are reaching a bottom: steep price declines and high volume, said Nick Levidy, a managing director at Moody's. We're seeing steep price declines but the volume is very thin.

Falling prices are exacerbating the crisis in commercial real estate markets, where borrowers are looking to refinance billions of dollars in mortgages over the next five years. Lower property values and tight lending requirements often mean borrowers must come up with more equity or face default, creating a vicious cycle.

Commercial property transaction volume in May was the lowest on Moody's records, passing the low set earlier this decade, Moody's said. Among those transactions were distressed sales, which were almost certainly starting to exert downward pressure on the returns, Moody's analysts said. (Reporting by Al Yoon; Editing by Leslie Adler)

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