City of Newcastle says it is "likely better to demolish and construct a new" western Queens Wharf building than repair the fire-damaged space that has been vacant for more than two years.
A fire broke out in the Wharf Road building in May 2020, and some areas continued operating before the premises became empty in December 2020.
It previously housed several eateries including Six Degrees and Cielo Italiano, as well as Harbourside Function Centre.
The Queens Wharf buildings were opened in 1988 by Queen Elizabeth II on her Bicentennial tour of Australia.
City of Newcastle, which owns the site, said the 2020 fire "caused major damage across all three floors of the building".
"The building, given its age, would require major upgrades to comply with current fire, accessibility and mechanical standards," a spokesperson for the council said.
"The cost of this work is in the many hundreds of thousands of dollars, meaning it is likely better to demolish and construct a new building that maximises both the north and south facing sides now that the heavy rail line has been removed.
"We will engage with the community once the potential options for the site have been evaluated."
Queens Wharf Hotel publican Steve Smyth said he had expressed interest in demolishing and redeveloping the site to extend his lease to two buildings.
He said his idea would involve entertainment, a beer garden and potentially accommodation.
"The plans were beautiful, we wanted to do it tastefully," he said.
The City of Newcastle spokesperson said the council would continue to own the site.
"Council-owned properties cannot be sold via private offer," the spokesperson said.
"Rather sales must occur via an expression of interest process.
"CN has no current plans to sell any part of Queens Wharf."
Mr Smyth said he would like to see something done with the space.
Since it closed, kids have scaled the building to jump into the harbour, and Mr Smyth fears someone may get hurt.
"It's sad to see it sitting there," he said. "It's got some of the best views in the world in my opinion - it's a working harbour.
"That building, for the rent it could be getting, it's a bit of a travesty for ratepayers."
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