Canberra's office vacancy rate has decreased by more than 2 per cent in the past year, headlined by a strong uptake of the city's premium stock.
New ACT Property Council figures published on Wednesday paint a positive picture for Canberra's office market, showing demand for space ranked behind only Melbourne among Australia's central business districts.
But the lobby group has raised concerns about "red flags" for the sector, including a tighter lending market and the impact of the ACT government's commercial rates reforms.
Canberra's overall office vacancy rate dropped to 11 per cent in January, down from 13.2 per cent 12 months earlier.
The drop was attributed to a loss of office space coupled with strong demand over the past six months.
Civic's vacancy rate increased from 10.5 per cent to 12.2 per cent after an injection of new space in the market. Outside the city centre, the rate fell from 13.2 per cent to 10.5 per cent.
Vacancy rates Australia-wide dropped 0.7 per cent to 8.5 per cent over the the past six months.
ACT Property Council executive director Adina Cirson said Canberra's office market was in a strong position, highlighted by the private sector's interest in the city's premium office spaces.
With the Commonwealth occupying more than half of the ACT's office space, Ms Cirson said movement in the market tended to slow in a federal election year.
But she expected 2019 to be different.
"There seems to be a continuation for the Commonwealth to seek efficiencies through their leasing strategies, [which] lean towards a reduction in occupational density targets, improved fit outs and seeking to attract incentives before locking in longer-term leases. [This means] the next 12 months will be busy," she said.
Ms Cirson said she expected office-space demand would remain strong in the medium- to longer-term, but warned there were "red flags which needed careful monitoring".
These included increased regulation and scrutiny in the lending market, continuing increases in the vacancy rate for lower quality space, and rising commercial rates driven by the government's tax reforms.
The ACT Property Council last month revealed commercial rates were around nine times higher than residential rates. Owners on land valued above $600,000 were now paying the equivalent of a stamp-duty-like charge each year in rates, according to the lobby group's research.
An ACT Assembly inquiry into commercial rates started on Wednesday, with hearings scheduled on Thursday (February 7), Friday (February 8) and on February 28.