LONDON, March 5 (Reuters) - Major European banks have been cutting their lending to commercial property and have half the exposure of their U.S. peers, making U.S. lenders more vulnerable as office prices plunge further, Morgan Stanley said on Tuesday.

Commercial real estate (CRE) markets are in the grip of the biggest downturn since the 2008-9 financial crisis as higher borrowing costs and a spike in vacancy rates driven by more people working from home hit demand for office space.

Morgan Stanley analysts said in a research note that regional U.S. banks looked most exposed, alongside German regional lenders - which unlike bigger European banks had been increasing their exposure.

"Overall, we think CRE-related issues will not translate into a systemic event, but rather a manageable earnings impact localized to a small set of banks," the analysts wrote.

In a 'stress scenario', in which property price falls force banks to recognise losses and borrowers' credit quality worsens, European banks would face a 3% hit to earnings over three years, which the analysts called "manageable".

That is especially the case as 70% of large-cap European banks reduced their exposure since 2022 to around 5% of their loan book, and nearly all lenders have sub-1% exposure to the United States, where office vacancy rates are 21% versus 8% in Europe, the analysts said.

By contrast, German regional banks have more than 20% CRE exposure, with such loans accounting for most of the loan books of specialist lenders Deutsche Pfandbriefbank and Aareal, Morgan Stanley said.

Among large European lenders, Deutsche Bank has the biggest CRE exposure to the U.S. market, but the analysts said it was just 1.5% of its loans and that the bank had already set some money aside to cover potential losses.

U.S. large cap banks have about 11% exposure, while mid-cap lenders - some of which have seen their shares plunge in recent weeks - have around 30%, they added.

Refinancing risks and vacancy rates have been "key concerns" for the market globally, the analysts said, but they saw "notable differences" between U.S. and European banks.

About $660 billion of CRE debt is set to mature in the United States in 2024, against $150-$200 billion in Europe, they estimate.

City office vacancy rates range from 32% and 27% in San Francisco and Los Angeles respectively, to 9% in London and 5% in Zurich, according to Morgan Stanley. (Reporting by Tommy Reggiori Wilkes Editing by Mark Potter)