The rise in vacancies stemmed from an increase in completions and a decrease in take-up. There were 26,300 units completed last year, up 2 per cent year on year, while take-up was 19,200, sharply down compared with the previous year's 29,180.

Completions are expected to rise to 30,000 units this year and 28,000 next year. The New Territories will supply 75 per cent of completions this year and 60 per cent next year.

Government indices showed private housing prices fell 13.3 per cent last year and rents dropped 7.1 per cent.

Acting Commissioner for Rating and Valuation Wong Chun-shiu said the fall in prices and rents was due to the slow economy, weakened home-buying power and the cutback in rental budgets.

Cheung Kong (Holdings) executive director Justin Chiu Kwok-hung said the rise in vacancies was due to weak residential sales during the first three quarters last year.

'Sales have improved significantly in the past two quarters and I believe more than 70 per cent of the units on sale were snapped up by buyers. Market response for urban projects is much better and I think the vacancy rate in urban areas can improve greatly this year,' he said.

Office completions dropped to a decade-low of 818,000 square feet last year, down 20 per cent from the previous year.

Take-up slid to an historic low of 32,300 sq ft and the overall vacancy rate rose from 10.2 per cent to 11.1 per cent, involving 10.89 million sq ft.

The Government forecast office completions would rise substantially to 1.84 million sq ft this year and 3.35 million sq ft next year.

Office prices fell 18.4 per cent last year and rents decreased 4.8 per cent.

HSBC Securities analyst Derek Cheung believed the downward trend in grade-A office rentals remained unchanged.