The Prince of Wales Hotel in St Kilda has become the latest landmark live music venue to be put up for sale in Melbourne, raising further questions about the protection of the city’s cultural heritage.

The four-storey St Kilda venue has been listed as having “immediate development potential with approved plans and permits for four additional levels of premium residential accommodation”.

The property, which is expected to fetch upwards of $25m, comprises a restaurant, a hotel and a spa, as well as the Prince Bandroom, which has hosted bands including Smashing Pumpkins, Coldplay and Goldfrapp, as well as countless Australian acts.

Live music advocates hope the bandroom will be preserved as part of the sale but the listing adds to concerns about the future of Melbourne’s storied music venues.

The Espy, near the Prince of Wales, was briefly listed for sale this year, while the Palais Theatre, also in St Kilda, requires at least $15m to keep it open, according to the local council. In August, the Bennetts Lane jazz club announced it is to close after 22 years, with the land sold to a developer.

In a high-profile blow to music fans, the art deco Palace theatre in the city closed as a music venue in May. Developers planned to build a luxury hotel on the site although the state government has raised concerns this would overshadow the nearby state parliament.

Patrick Donovan, the chief executive of Music Victoria, told Guardian Australia: “There’s a concern because we don’t know what the intentions of the new owners are, but we are not hitting the panic buttons just yet over the Prince of Wales. Hopefully it will be OK.

“It’s a tragedy walking past the Palace and seeing it empty. It used to be such a thriving venue and we want it to be saved as a music venue. People hate to see these beautiful old buildings lying empty.”

Donovan said there had been progress in the past two years, with a host of live music sector requests accepted by the state government. Most notably, “agent of change” proposals were adopted by the government, which means that newly built developments will have to soundproof themselves rather than forcing an existing live music venue to pay for the work or shut down.

But Music Victoria wants further action to protect buildings with a strong music heritage, as well as the creation of an Australian music headquarters that would showcase Australia’s music scene.

“The next challenge really is to give some sort of cultural heritage protection to these buildings, given they don’t comply to building heritage standards,” Donovan said. “In the UK there’s a cultural register that protects such buildings so it would be great to see that here.

“We could have a hall of fame or walk of fame near the Palais, and there could be a contemporary music headquarters at the Palace. It just needs a bit of support and a strategy.

“New venues are emerging each year so it’s not like we’ll run out of them. But it looks like the Forum will close for some time next year, the Palais needs some restoration work done and the Palace is lying empty.

“There aren’t many other venues with a 2,000 or 3,000 capacity, which means that tours have been cancelled because it’s just not worthwhile for bands.”

Labor and the Liberals are set to unveil their live music policies in the coming weeks, in the leadup the 29 November state election; both are understood to support the idea of a music headquarters in principle.