Hong Kong's office market has been hit with higher vacancies and falling rents, even as demand across Asia-Pacific picks up in line with an improving outlook, a report shows. The vacancy rate in the city rose 0.77 percentage point to 3.8 per cent in the final quarter of last year from a year earlier, although it dipped 0.18 percentage point on a quarter-on-quarter basis, CBRE's report on the region's office market found. Grade A office rents for Hong Kong Island and Kowloon fell 1.3 per cent overall from the previous quarter, noting an increasing preference for cheaper premises in non-core areas, it said. The property consultancy expects demand to remain weak in the first half of this year, but activity may increase in the second half as companies gear up for business growth next year. In contrast, vacancies continued to decline in Asia-Pacific in the quarter, falling 0.7 percentage point to 9.3 per cent. All the markets in the region, except Beijing, Hong Kong and Guangzhou, saw shrinking vacancy rates. Beijing, where rents grew 0.5 per cent quarter on quarter, posted the biggest increase in vacancies, up 1.27 percentage points to 3.9 per cent. While demand for office space in Asia-Pacific is expected to see a sustainable improvement this year, overall rents are likely to be flat. The pick-up in sentiment in the sector became apparent in the fourth quarter of last year as economic growth in the region accelerated to 5.3 per cent. "Most countries recorded an uptick in demand with more leasing inquiries and transactions recorded on the mainland and in Japan and Singapore," CBRE said in the report. "Rental growth in the likes of Tokyo, Singapore, Auckland and some Southeast Asia markets will be offset by the declines in Shanghai, most Australian cities and some submarkets in India." According to the consultancy's Asia Pacific Office Rental Index, rents edged 0.24 per cent higher in the fourth quarter of 2013 from a year earlier as demand improved in a number of markets such as Jakarta, Ho Chi Minh City and Singapore. The region took up a net 8.6 million square feet of office space during the quarter.