Sex industry magnates are to open a "massage" club directly opposite the Sky Tower and flanked by residential buildings and shops.

In a move which has stunned nearby retailers, millions of dollars have been spent to turn the Palace Hotel pub, on the corner of Victoria St West and Federal St, into a new adult venue.

Wellington brothel owners John and Michael Chow bought the run-down building for $3.3 million, saying they hope to cater for the needs of visitors, gamers from the SkyCity Casino and tourists.

Although the Rugby World Cup is considered as the prompt, the developers say their vision is longer-term than that, and women as well as men will be welcome at the new premises.

Other businesses say the central city spot, which is popular with tourists, residents and CBD workers, could become a red light district.

Few facilities in the area cater for men and there is a definite demand, they say. Adverts for massage staff have already been published.

The Chow brothers own a string of Wellington brothels including Il Bordello and Splash Club, as well as the Mermaid strip club.

The Auckland building, with a distinctive yellow facade, was once owned by Dominion Breweries but was sold to Chow Group.

Neighbours and retailers were this week questioning how the area would change but the brothers are not speaking about their Auckland plans.

John Chow said he was working with a "well-known international adult entertainment company" to create a project that would be the first in Australasia.

"But due to the confidential agreement we cannot disclose any information at this stage."

SkyCity chief executive Nigel Morrison was making inquiries about the intended use of the Palace Hotel.

Michael Chow has said legalising prostitution has opened the way for the development of "high class" operations, and he prefers central city areas for them.

Meanwhile, a block away at 51 Hobson St near the Victoria St West intersection, another group of Asian businessmen are spending $1.5 million on developing a $1.5 million "day spa" which includes men-only areas, where clients can bathe naked, and many small rooms for massages.

Louis Yang, of JC Pacific Trading, denied that the new Gold Coast Health spa, on level one, would be a brothel.

A tour of the club revealed many small rooms with massage beds have been built and furniture is arriving.

But Mr Yang acknowledges there are men-only areas, and says SkyCity's proximity is a big boost. He hopes to open next month.

Gold Coast is advertising for massage staff, and is offering to train them.

One businessman who examined leasing buildings in the area said SkyCity's draw pulled brothel visitors and said there was a distinct lack of these amenities in the area.

Some shopkeepers said they would be disgusted if their area became a red light zone.

Patrick Lim, owner of the Golden Age Vegan Restaurant, said many of his customers were "religious and devout" people and he was worried that brothels in the area would turn them away.

"My business will definitely go down if the sex shops come up," Mr Lim said.

Celie Main, bar manager at The Fiddler, which is next to the Palace Hotel, believed the brothel would take business away.

"Most brothels have their own bar, and this will surely impact on our takings. It's not good news at all."

Sam Ram, who runs the Victoria News Agency, said any extra customers created by the businesses would not be the type he wants.

"Running a dairy is already dangerous; having a brothel next door will make it even more dangerous," he said.

Lynn Yu, 21, who lives at the Victoria City Apartments, said she would consider moving if more brothels open.

She said there were already two brothels in the area and two more will turn Victoria Street into another K' Rd.

"I often stand outside the apartment building for a smoke. It would be horrible if people started thinking I was one of the prostitutes," she said.