It is understood the estimated clean-up bill for the 4-hectare site, bordered by Smith and George streets and Queens and Alexandra parades, could range between $30 million and $50 million.

Places Victoria's general manager of new business development Michael Lenarduzzi  said an initial phase of community engagement into the potential for a mixed-use precinct started this week and would continue until June 10.

"Following the initial community feedback and further due diligence, Places Victoria will assess whether it is feasible to move ahead to the preparation of a draft master plan for public comment," Mr Lenarduzzi said.

"A commercially responsible development will be required to help fund the remediation costs, the potential relocation of the council depot and delivery of community facilities," he said.

The City of Yarra has called for any proposal to include facilities for the local community, including an indoor sports centre. Its Smith Street border is the site of the recently defaced 1980s feminist mural.

The property, at 433 Smith Street, has been an industrial site for more than 100 years, and was previously the location of a gasworks, where coal was processed into gas.

The result is a heavily contaminated piece of land. A 2008 urban design framework produced for the City of Yarra by MGS advised that remediation would require excavation and removal of the top 4.5 metres of soil from the 40,000 square metre site.

Despite the big remediation bill, interest in the site is expected to be high. The former industrial and commercial precinct, at the junction of Fitzroy, Fitzroy North, Collingwood and Clifton Hill, provides only a few large sites suitable for big residential developments and seriously contaminated sites can still command big prices.

The 24-hectare Amcor paper mill in Alphington sold for around $120 million and the Bradmill denim factory in Yarraville fetched $160 million. The Gasworks site is smaller but the land values around Queens Parade are growing steadily.

In February, developer Tim Gurner paid more than $40 million for 26-56 Queens Parade, an 8500 square metre bright pink warehouse across the road. That price equates to around $4750 a square metre.

Last November, the former Clipsal warehouse at 81-89 Queens Parade, just across George Street from the Gasworks, sold at auction for $14.05 million or $4389 a square metre. At those prices, the land could be worth between $170 million and $190 million.

CBRE Ed Wright, who handled the sales process for the 3201 square metre Clipsal site, said "there's huge demand for these sites in the inner north".

Lemon Baxter agent Jay Pavey, who handles commercial leasing for the site, said the site is subject to a series of two-year leases, which undermines the investment's rental potential.

"I get calls constantly, especially as the area is so popular," Mr Pavey said. "We've had so many potentially interesting tenants – people wanting to set up dance venues or outdoor cinemas – but they don't want to put in the infrastructure for a short-term lease."

The property includes 9103 square metres of warehousing, 1771 square metres of office space and 245 car parks.

It is understood to return about $425,000 year in rent, but could easily make two to three times that if the longer leases could be secured.

However, for the past 10 years, short-term two-year leases have been the norm because of impending developments. The site was even cleared of tenants in 2014 for construction of the East-West Link.