AN iconic bar and neighbouring backpackers in the heart of Rotorua is to be knocked down in the coming weeks, making way for a new $3 million development that's expected to breathe more life into Rotorua's central city.

Hennessy's Irish Bar on Tutanekai St and Blarneys Rock Backpackers are to be demolished after their final trading day on Easter Sunday, March 27.

By November, a new and bigger Hennessy's Irish Bar will open on the same site.

Reg Hennessy, who started Hennessy's 13 years ago, said it would be a sad day watching the wrecking ball go through the building but the time was right for the new Hennessy's.

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"There have been some great memories, I can promise you. I took a broken down almost derelict building that was falling down in places and turned it into one of New Zealand's most successful Irish pubs.

"It's sad but exciting that a whole new pub is going to take its place. It'll be another drawcard in Rotorua and something to show there's confidence in the city."

Hennessy's is now owned by Essex Ltd and run by director Sue Burnett. The company also runs neighbouring Tutanekai St businesses - the newly opened Jubilee Deli and Bar and Capizzi Pizzeria.

Mrs Burnett said the demolition was needed because the 1920s building was classed as earthquake-prone as part of the Rotorua Lakes Council's Earthquake-prone Buildings Policy that came into effect in 2009.

She said the building's landlord had another eight years to pull down the structure but it was decided to act now as Hennessy's was in need of a revamp.

She said fittings from the old Hennessy's would be restored and used in the new structure to maintain the original feel and the layout would be similar, but bigger given Blarneys Rock Backpackers would no longer be there.

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She said the toilets and kitchen fit out would be to a standard not seen before in Rotorua. The company was also proud it had not made any of its 20 staff redundant. Some were from overseas and intended to leave anyway, while the others had been offered jobs in their two other businesses.

The cost of the demolition, rebuild and refit was estimated to be $3 million, she said.

The timing of the project was also critical with the building period avoiding the bar's biggest trading day on St Patrick's Day on March 17 and being ready before next summer and the British and Irish Lions match against New Zealand Maori in Rotorua in June 2017.

Mrs Burnett said hospitality in Rotorua was starting to boom and they were just catching their breath from a very busy summer season - thanks to increased visitor numbers and an improved economy.

"It hasn't been as strong as this since the mid 2000s. The nightlife may have moved down to Eat Streat for the moment but the tourist life is still around here."

Rotorua mayor Steve Chadwick said she was so pleased those behind Hennessy's had chosen to reinvest in the city.

"They are Rotorua people and they love the place like we do. These are the investors we love and it gives us a good feeling."

She said the new Hennessy's would be a welcome addition to the growth in the central city.

"It reflects we have this belief in ourselves and we have always said the growth in the central city will not just be retailers. They are growing new business and in the heart of our city and I just couldn't be more rapt."