The officer overseeing the investigation said police had received reports a group of young people ran from the heritage-listed former hat factory about 4pm on Thursday, shortly before the massive blaze took hold.
“Last night, two young people handed themselves in at two separate police stations in the late hours of last night,” Acting Assistant Commissioner Paul Dunstan told reporters on Friday.
The two, both aged 13, handed themselves in at Paddington Police Station and Kings Cross Police Station and were assisting with inquiries.
Police urged three or four other young people who may have been inside the building before the fire, to come forward with their parents.
The building is known for regularly housing 15 rough sleepers, and police have made contact with 13 of those people to confirm their safety.
More than 120 firefighters from 30 fire trucks battled the blaze which consumed the brick and timber building in Surry Hills as thousands of people watched on.
Firefighters worked through the night to extinguish the blaze and are using a drone to monitor hot spots for potential reignition.
There are concerns more building walls could still collapse without warning.
“There are two walls that are in a precarious position,” Fire and Rescue NSW Superintendent Adam Dewberry told AAP on Friday.
“There’s definitely a high chance they’ll come down without notice.”
Supt Dewberry said there is still a significant amount of work to be done to make the building safe for access, especially if the wind picks up.
“We are talking about tonnes and tonnes of bricks that could come down and become projectiles,” he said.
“There are glass windows and glass panelling still falling down from the building across the road.”
A tight exclusion zone surrounds the building, ensuring nobody including firefighters can get in.
About 50 people are still unable to return to their homes after being evacuated.
Among those locked out overnight was a bride getting married on Friday.
Firefighters were able to enter her apartment and collect her wedding dress during a run for essentials.
Once the area is safe, residents and businesses are expected to be allowed to return to their premises and the major thoroughfare Elizabeth Street will be reopened.
Supt Dewberry praised his crews for preventing significant damage to nearby buildings after fire spread into an apartment block and one suffered extreme heat damage to its exterior.
Local locksmith Phu Tang said he saw high-school-aged children fleeing the burning building as he walked back to his workshop on Thursday.
“I could hear shattered glass hitting the footpath and I looked up and the building was already on fire,” he told Sunrise on Friday.
“The kids were running past me.
“They screamed upwards talking to another kid inside the building, asking why he was still inside.”
There were plans to turn the former hat factory into a 123-room, two-restaurant hotel at a cost of almost $40 million.
Due to the size of the fire and the impact on the community, a report will be prepared for the coroner.
The fire was one of the largest fires in the city for years, Fire and Rescue NSW acting Commissioner Jeremy Fewtrell said.
He said it was lucky no one was badly hurt in the extremely dangerous conditions.
The former factory’s roof collapsed, then the floors, before parts of the building’s walls fell down shortly before 5pm, sending red hot bricks tumbling to the streets below.
The only reported injury was a minor burn suffered by a firefighter.
A ute parked beside the building was also lost in the fire.