John Liangis of Liangis Developments Pty Ltd, which owns the cinema block, said Capitol's tenancy had been "compromised" by the forced closure of cinemas in the ACT in March, and an agreement had been made to allow the business out of its lease some years before it was up.

"We've come to an amiable agreement to let them off their lease to hopefully renegotiate a new lease with a new facility," he said.

A former employee of eight years, Paul Brennan, said Capitol had incredibly loyal customers but he expected a new cinema could take its place.

"We programmed it well, we always ran films that suited the market," he said.

"It was terrific as an attended venue, but physically the venue was creaky and crummy and now it's shut."

A long-running plan for a hotel development on the site has been put on hold due to the COVID-19 pandemic, and Mr Liangis said he was "apprehensive" about moving forward.

"Hotels run rooms but their business is restaurants and bars and all the other facilities they provide for people are all on hold for people or under strict guidelines," he said.

The development, which was at the centre of a stoush around a London plane tree that was removed last year, had included plans for a new cinema complex to replace Capitol.

Mr Liangis said he wanted to continue a more than 30-year relationship with Greater Union, which owns Capitol Cinemas, but given the current climate there were "no guarantees".

"We have a very saturated market in Canberra at the moment, there's a major cinema complex in every town centre, new ones being built. The old days of just having a single cinema for the entire population of Canberra [are] gone," he said.

"Factor in things like the coronavirus, it makes it very problematic."

The cinema has been contacted for comment and has not yet responded.

The cinema's members were notified of the decision in an email on Monday.

"We've been showing movies at Capitol Cinemas Manuka for many years so this decision was not made lightly," a spokesperson said.

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"Together we have shared magical movie moments, first dates, family outings, birthday celebrations, romantic anniversaries, huge belly-laughs, exciting adventures and nightmarish scary scenes - and we've loved every minute."

John-Paul Romano, who runs the Inner-South Business Council, said the cinema had been a key part of Manuka.

"It provided a great night time trade for local cafes, whether it was coffee or dinner before or after a movie," he said.

"We do hope a cinema returns in the new complex however are obviously aware a new cinema may attract a whole different group of patrons."

Mr Romano said the cinema had helped boost late night trade for surrounding businesses, particularly restaurants and bars.

He said large projects such as the hotel development should be among those pushed forward by the ACT government in a bid to restart the economy.

"It's a $100 million-plus investment in the local economy, those trades are going to need to buy breakfast and coffee, do their local grocery shopping," he said.

"There is considerable flow-on effect to the local community during the construction, demolition and the operation phases."