UPDATE 1-US commercial real estate mkt sags in Q2-trade group

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WASHINGTON, Aug 19 (Reuters) - U.S. commercial real estate activity in the second quarter slowed to its lowest level in 15 years as demand for office and retail space collapsed amid the severe recession, a real estate trade group said on Wednesday.

The National Association of Realtors (NAR) said its Commercial Leading Indicator for brokerage activity index fell 1.3 percent to 101.5 in the second quarter, the lowest reading since the first three months of 1994.

“The reduction in commercial real estate activity is expected to last at least through the first quarter of 2010. Any meaningful recovery is not likely to occur before the second half of next year,” said NAR chief economist Lawrence Yun.

Commercial real estate has been hampered by the lack of access to credit. In a step to boost credit to the $6 trillion market, the Federal Reserve extended its Term Asset-Backed Securities Loan Facility (TALF) to mid-2010 this week.

The commercial real estate market has weighed on bank earnings and is seen by Fed officials as a danger to economic recovery if borrowers with maturing loans find no other outlet than default.

Yun said the Fed measures should improve the flow of credit to the commercial real estate sector, but labor market recovery remained critical.

“The office sector requires job growth to fuel the demand for additional space, the industrial sector needs a rise in production and the retail sector is tied to consumer spending,” said Yun.

“Multifamily housing -- the apartment market -- often performs in reverse to trends in home sales, but can improve if there is sufficient household growth.” (Reporting by Lucia Mutikani; editing by Jeffrey Benkoe)