A group of rappers in puffy jackets and hoodies are being filmed jumping around in unison against a brick canvas of eye-popping red and yellow street art: a giant, leering Jim Carrey as Firemaster Bill winks out at them.

A short distance away, two men admire a portrait of Jam Master Jay – the Run-DMC deejay who was murdered in his studio in 2002 – spray-painted on to the same giant warehouse of a building.

This is 5Pointz.

Even when closed for the winter, this rambling building in Queens – which covers almost an entire city block – attracts scores of graffiti artists, hip-hop stars and tourists. Guide books advise tourists to take the elevated 7 train, which loops around the outdoor exhibition space, bagging them two New York landmarks in one go. Three, if you count the neighbouring contemporary arts centre MoMA PS1.

But this sprawling public graffiti mecca is living on borrowed time. Last March, its owner, Jerry Wolkoff, announced plans to demolish the building to make way for high-rise condos. 5Pointz, which celebrates its 10th anniversary this year, is unlikely to continue far beyond 2013.

But Wolkoff's plan, say artists and community activists, will not only destroy an important hip-hop landmark, but the vibrant artistic community of Long Island City – one of the largest in New York – along with it.

By leaving young graffiti artists with nowhere else to go but the streets and the subways, where spray painting is illegal, the artists say, it could well prompt a wave of vandalism.

Former graffiti writer Gwiz, 51, from Hollis, in Queens, now works for the city's Parks Department. But on one recent January morning Gwiz had come with some friends to visit 5Pointz – affectionately known as the Institute of Higher Burnin' (a burner is basically an elaborate work of graffiti).

"It would be a travesty in this neighbourhood , a travesty for the community. This is the history of hip-hop, with the music and the breakdancing and the art," laments Gwiz. "You would destroy a piece of history."

He points to the fifth storey, where a rollcall of the names of dead legends of New York's graffiti scene – names like IZ The Wiz – are painted in fat pink lettering.

Walls where artists can spray-paint legally for free are few and far between. Those that do exist, such as the 3,000 feet of Venice Art Walls, in Venice Beach, Los Angeles, tend to be more formalised and on a much smaller scale than the 200,000 square feet available at 5Pointz.

Meres One, aka Jonathan Cohen, who has been the 5Pointz curator since 2002, says that in summer he can have up to 110 artists painting at any one time. "They come from Italy, Germany, Russia, Spain – all over. In the summer, you have DJs and break dancers and freelance MCs. It's not just graffiti."

A graffiti artist himself, Meres took over curatorship from Pat DiLillo, the founder of the original project, The Phun Phactory, set up in 1993 to discourage graffiti throughout the city by allowing artists to showcase their work in a more formal showcase. When Meres took over, he rechristened it 5Pointz – a reference to its easy accessibility by train from all of New York's five boroughs – and set about raising the bar of the quality of the art that graces its walls.

"I'm an artist, so I can judge art better," he said.

A volunteer who raises money for the project by charging those who use the place as a backdrop for videos and commercials, Meres does it out of his love of graffiti. "I love the art form. I want it to get the recognition it deserves."

5Pointz, mural by Meres, Cortez and Zeso. Photograph: Karen McVeigh

Driving around the building in his green Chevrolet, Meres points out murals he has decided will remain for a while yet before being painted over. One is of a western scene by artists Cortez, Zeso and himself.

"I'll go over this eventually, but I like the way it fills the space," he says. He points out a portrait of Obama, almost lost in a US flag, which has bullets instead of stars. Next to the cowboy scene is another mural by Yok and Creepy. The work higher up the building is mostly just tags, due to the time constraints of working on a platform, he said.

Meres was initially upset about the plans to demolish 5Pointz, but he has become more sanguine as he gets used to the idea. He refuses to consider the future, instead getting ready to enjoy a summer of great work. "If it's going to be the last year, it's going to be a great last year," he says. "There's certain things you can't control, but I can control having a good time."

However, Meres and others worry that the demise of 5Pointz will create a wave of vandalism.

"What I'm doing is offering an outlet, and while they are here they are not doing it elsewhere" said Meres. "But when it goes, people are going to be angry. And they will go to the streets and the subways."

Luis Lamboy, who works as Zimad, is a successful street artist who grew up in the projects in the Bronx. He compared 5Pointz to a youth centre for young artists. He said: "While they are here, they are not in the street. They are learning a trade, learning something that they can make money from in the future. You are going to get an influx of vandals and that is going to be expensive for the city."

Zimad began spray-painting illegally on subways, but now showcases his work in galleries and art shows. He credits putting down his paintbrushes and heading to 5Pointz with reinvigorating his career.

"I was working with acrylics and oils and doing the gallery thing; I hadn't done spray-paint for a number of years. But spraying again enabled me to become more creative," he said. "It was like going to art school, where you paint every day and just get better. Painting on a wall here felt totally different. It pushed away my troubles or being chased by the cops because it was illegal. It was inspiring. It rejuvenated me."

Some believe the end of 5Pointz has been some time in coming. In 2009, an accident left a female artist in critical condition when an external stairway collapsed. Wolkoff was charged with a number of building regulation violations, according to newspaper reports, and the artists who worked in studios inside the building were not allowed to return.

Sue Peters, who runs Lic Salon Apparel on the building's ground floor, says: "When they tell us to go, we'll go, but it would be nice if they would keep some industrial space here. I guess artists don't pay the rent: that's the problem."

Eric Benaim, the owner of real estate business Modern Spaces in Long Island City, describes 5Pointz as "a landmark, my favourite building". He sayd: "I'm in real estate. I understand why he might want to rent it, but I wish he would incorporate it into something."

Benaim adds: "Neighbourhoods change. Once-desolate areas become occupied by artists because of cheap rent, and then it becomes cool and there are restaurants, and then the developers come. It's like the cycle of life. But I owe a lot to artists."

Over the past five years, Benaim said, real estate has gone up from $60 to $100 a square foot, making the real 5Pointz's 200,000 square metres potentially worth $20m.

David Wolkoff, Jerry's son, says their plans to build rental apartments in the space would include a street artist programme at ground level. He says that the demolition of the building is "unlikely to be this year", but would be soon.

Wolkoff, who has promised to retain a wall for artists to use, said "when the time comes" he would approach Meres to see if they might be able to work on something together.

"I know they're upset that the building is coming down, and we are really appreciative of all the artists' work there," he said. "But the world changes."