LONDON (Reuters) - A correction in the European commercial property market accelerated in the second quarter of 2008, with transaction volumes diving to their lowest levels since 2003, property consultancy Cushman & Wakefield said on Monday.

Trading volumes fell 63 percent year-on-year to 25.6 billion euros (20.2 billion pounds) in the three months to end-June, while average European prime yields increased 16 basis points to 6.5 percent, the highest for two years.

"The market took an early holiday," said Michael Rhydderch, head of Cushman's European cross border capital markets group.

"Deal volumes have slowed not so much because of a shortage of demand or supply but because of the sheer uncertainty over financing and hence pricing," he said.

Larger European markets are still reeling from a global debt famine, with UK transaction volumes down 60 percent, German volumes down 55 percent and property trading in France down 51 percent but the worst declines have been in smaller markets such as Greece, Ireland and Hungary.

Despite high-profile corporate casualties such as property firm Martinsa Fadesa, Spanish real estate transaction volumes have dipped less than 10 percent on last year's figures.

Cushman & Wakefield said Spanish property re-pricing -- behind only the UK and Norway in its severity -- had opened up a rich seam of investment opportunities at a faster rate.

OCCUPATIONAL PROSPECTS

Occupational markets remain stronger, with prime rents up 8.9 percent in the year to June but the rate of growth is slowing, the report said.