Property Council of Australia ACT executive director Catherine Carter attributes the high vacancy rate to federal government decisions to cut the number of public servants, and therefore office requirements.

The vacancy rate for high-quality office stock has fallen. A and B grade rates have fallen by 0.3 per cent and 0.7 per cent respectively.

The vacancy rate for C-grade office stock has risen from 11.9 per cent to 15.1 per cent; the rate for D-grade stock rose from 20.3 per cent to 20.9 per cent.

Ms Carter said the decrease in the vacancy rate of high-level stock showed the importance of upgrading older stock for new uses, which promotes growth in the areas that need it.

The market report shows Canberra has the third-highest office vacancy rate in Australia.

In the past two financial years, the vacancy rate in Civic has risen from 8.8 per cent to 11.5 per cent. Vacancy rates elsewherehave risen from 10.2 per cent to 14.5 per cent.

Civic's sub-lease vacancy rate has increased from 0.3 per cent in July 2013 to 2.8 per cent a year later, which represents a rise from 2251 square metres to 18,862 sq m in a year.

The non-Civic sub-lease vacancy rate increased by 0.1 per cent in July 2013 to 1.0 per cent this July, which is an increase, over 12 months, from 1813 sq m to 16,703 sq m.

Knight Frank valuations director Steven Flannery said the 35,000 sq m of sub-lease was mainly government space and the Commonwealth was committed to pay the rent on it.

“Therefore they’ll probably backfill that first before they go to the open market, which is unfortunate for the people that are sitting there with buildings on the marketplace,” he said.

The data also shows Canberra’s rate of direct vacancy is at historically high levels, eclipsing those of the mid-1990s. Mr Flannery said this wave of vacancy had largely been predicted but it still posed a challenge to the industry.

Re-churning old stock was important to getting the direct vacancy rate down to about 10 per cent, he said. “We have a market where we have land available to us for new developments and yet we’ve got to deal with these old shells,” he said.

Mr Flannery said that while the ACT government had given the property sector an economic stimulus earlier in the year, it was not quite enough to encourage the take-up of vacant stock.

Property developer Barry Morris said the cost of refurbishing a building in the ACT was almost the same as building a new one, and there needed to be more incentives to encourage adaptive re-use of buildings.

The office market report says 24,500 sq m of new office space is due on the market in the second half of this year, followed by about 23,329 sq m in 2015.