Darling Harbour Exhibition Centre

Operation transformation ... how the convention centre looks now. Photo: Tamara Dean

SYDNEY'S billion-dollar convention and exhibition space will be too cramped and Australia risks losing lucrative global events to rival Asian cities, industry leaders say.

The state government announced on Tuesday Darling Harbour's exhibition and convention centres would be demolished and replaced by 40,000 square metres of ''world class'' exhibition space and convention facilities holding more than 12,000 people.

But the chief executive of the Melbourne Convention and Exhibition Centre, Peter King, described the proposal as "compromised", adding it "is not delivering what we need to see growth" in the burgeoning industry.

He cited the proposed exhibition space, which will be split over two levels and partly held up by columns, adding Melbourne's single-floor, pillar-less space was "obviously significantly easier to manage than what Sydney is about to build".

A spokeswoman for Infrastructure NSW said ''stacked'' exhibition space was successfully used in cities such as Hong Kong and Vancouver, adding ''the modern events industry isn't about having the biggest space in one hall''.

A proposed expansion of Melbourne's exhibition space, possibly to 44,000 square metres, could also mean Sydney's claim to having the nation's largest facility will be short-lived.

Lend Lease won the rights to develop the 20-hectare site, which also includes a 900-room hotel and new residential precinct.

Mr King said the precinct, and the Harbourside shopping centre, constrained the proposal's footprint and took up critical space at the prime site.

His comments come as cities such as Hong Kong, Singapore and Kuala Lumpur increase efforts to attract business events.

"There is a lot of competition out there and Australia can't afford to drop the ball," Mr King said.

The general manager of the Exhibition and Event Association of Australasia, Joyce DiMascio, welcomed the proposal but the industry had hoped for more column-free space.

''The disappointment is that we didn't get the scale of capacity that will allow the city-based events to grow to their full potential,'' she said.

Group director of convention centres at AEG Ogden, Geoff Donaghy said the proposed design ''provides the best possible outcomes'' given its central location.

The state government has announced an interim exhibition space will be built at Glebe Island, operating from late 2013 to 2016. An announcement on the winning tender is expected next week.

Infrastructure NSW says the development would offer up to 25,000 square metres of exhibition space and will "continue to hold major exhibitions''.

However the director of the Australian International Motor Show, Russ Tyrie, said the event will be held at Sydney Olympic Park at Homebush, because Glebe Island is not large enough.

About 10,000 square metres at Glebe Island will be open space, to allow larger exhibits to expand.

The event manager of the Sydney International Boat Show, Domenic Genua, said it was unclear whether organisers would be forced to pay for marquees if they required additional covered space - an expense that would "send you broke", he said.

Ms DiMascio described Glebe Island as a ''terrific outcome'' but said it would require good transport, parking and facilities.

Infrastructure NSW said other Sydney venues would host conventions during the redevelopment, such as Allphones Arena.

However, a spokeswoman for vForum, one of the largest conventions to be held at Darling Harbour this year, said it would either relocate to Melbourne for the construction period, or conduct the event partially online "so it still works in Sydney".

The chief executive of the Tourism and Transport Forum, John Lee, described any disruption as ''minor short-term pain for significant long-term gain''.