A potential multibillion-dollar revamp of the site in the city's inner east would unlock the site's untapped potential, the NSW government said on Monday.
The key entertainment and sports precinct, neighbouring the Sydney Cricket Ground, Centennial Park and Allianz Stadium, could attract some of the state's biggest events, including the Royal Easter Show.
The government was looking for proposals that would deliver extra creative space, including an indoor venue to host audiences of 15,000-20,000 people.
That capacity would make it one of the largest venues in the city, on par with Qudos Bank Arena at Sydney Olympic Park and behind only major stadiums used as occasional concert spaces.
NSW Premier Chris Minns wants to draw people back to Sydney's city centre for entertainment. (Bianca De Marchi/AAP PHOTOS)
Premier Chris Minns said the announcement was part of a broader plan to bring people back to Sydney's city centre.
"It is falling far short of meeting its full potential," he said on Monday.
"We want to turn the EQ into a thriving world class precinct, full of dining and entertainment options, complete with a brand new venue."
The lease on the precinct expires in 2046, but the government said it would begin the open tender process soon.
The current lease for the site is held by Carsingha Investments, whose directors include Harvey Norman chair Gerry Harvey and high-profile businessman John Singleton.
The firm lodged an unsolicited proposal in 2019 to redevelop the precinct, but the plan will instead go out to tender with the leaseholder expected to vie for the project.
Arts Minister John Graham said a 20,000-person arena represented a "missing step on the venue ladder" for major performances in the state.
"The (precinct) has got a really important role to play for the city, but it's never reached the hopes that I think the city's held for it," he told ABC radio.
Independent MP Alex Greenwich, whose Sydney electorate includes the precinct, agreed the site was in need of redevelopment.
"It's either completely heaving when it's match day and say the Fringe Festival is on, or it is completely dead," he said.
Rather than increasing noise complaints from residents, a new, properly designed indoor performance venue would hopefully reduce sound pollution while also adding capacity to host major events like Mardi Gras, Mr Greenwich added.
The state Labor government previously lifted the annual cap on the number of concerts that could be held at the nearby Allianz Stadium after Mr Minns likened local opposition to an attempt to turn Sydney into a country town.
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