Simon Gatenby, who lives just north of the estate, said the Global Financial Crisis of 2007 had stymied investment in the area, but it had finally picked up in the past two to three years.

But he said the prison proposal had blindsided them and would set business development back by years.

"It's a real kick in the teeth for us who have been here developing it for 10 years, then along comes this investment killer," Mr Gatenby said.

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"We've been through the GFC with this, we don't want to be plunged into another scenario that'll have the same effect."

Owners of the industrial development funded the roads, water, sewage and other infrastructure largely via a loan from the Meander Valley Council, but had not been made aware of the prison plans.

The council had requested a cost estimate for Mr Gatenby's land for a prison, but he was told it was to compare with a site near the Ashley Youth Detention Centre. Mr Gatenby told the council they could only use his land for the prison if they purchased the full industrial land, but the council refused.

Mr Gatenby had also settled the purchase of land on Birralee Road just three days before the prison announcement. He planned to subdivide the land and was in discussions with the council, but was not made aware that a prison would be built nearby.

"We'll put it on the market, but it will be the perfect test case for the impact the prison will have. We had it valued prior, now we'll get another valuation," he said.

Fellow prison neighbour, Fred Baker, said he was informed of the prison plans by media who were doorknocking the area.

"The secrecy around it has been terrible. Wouldn't you go to the closest neighbour and see them first?" he said.

"I've got grandkids that love running up into the bush. It's no good saying that the prisoners won't escape, because they do."

Attorney-General Elise Archer said the prison would result in "enormous economic benefits" for Westbury, including in the industrial estate.

"We would expect that businesses involved in the construction and operation of the new prison at the preferred site would closely examine the possibility of locating their operations in the existing industrial precinct," she said.

"It is also expected that the project will deliver upgraded infrastructure to the immediate precinct including improved roads, increased public transport options and enhanced access to services.

"The Government selected the preferred site based on a number of factors, including suitability of land for a project of this scale, location relative to major population centres in the north and north west region of Tasmania, and connectivity to transport and services including power, water and sewage."