A real office drama: How a decrepit building was transformed into an inspirational arts hub

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Exit Finsbury Park station to the north and, as well as a thriving fruit-and-veg stall and a pub that seems to come to life only when Arsenal are playing, you'll find one of the most inspiring cultural projects in years. Just beyond the bus station lies London's newest theatre.

This spot seems an unlikely one. But it could have been even less auspicious: "We actually looked at toilets," says Jez Bond, the artistic director of the Park Theatre and the driving force behind the development. Rather than a refitted loo, the building the Park team chose is a dormant office block which used to belong to a charity. The kind you could walk past every day without noticing.

But Bond and architect David Hughes hope this once-forlorn setting can become an artistic hotspot to rival venues such as Covent Garden's Donmar Warehouse.

It's some task, though one helped by the fact that some of the areas around Finsbury Park, such as Crouch End and Muswell Hill, are home to more actors than the BBC canteen. "What we needed to do was find a place that didn't have a centre at the heart of its community, that was crying out for someone to come in and be that artistic hub," Bond says.

As Bond shows me around the site, which hopes to be hosting its first show early next year, it's hard to imagine this particular world becoming a stage. As workmen drill through walls, Bond points to the surface of the first floor and explains that, in a few weeks, it will be gone, replaced by cantilevered circle seating. It may look a long way from hosting the London stage's finest but, after almost a decade of work, this isn't far from the closing scene.

The project, which also involves a second, 90-seater theatre, an education space, three flats, a café, a bar and a back-of-house, began building in 2009 after a six-year search for a venue. Bond, whose previous work includes directing shows in the West End and on national tours, has poured himself into getting the place finished.

But rather than appoint a specialist architect, he appointed Hughes, who'd never worked on a theatre and whose practice specialises in commercial homes for developers such as Barratt. Bond explains the decision to me in theatrical terms: "It's a massive production and designing the thing is like the set design. The set designer's not designed the set for Macbeth before but he might have done Hamlet." Or indeed a Redrow hamlet. Nevertheless, the decision allowed for a ditching of preconceptions about creating a theatre.

The building is long and narrow and one unit wide. This provided several logistical challenges. For a start, where to put the stage? They settled for a side-on thrust stage (i.e. one that comes out into the audience) in the centre of the ground floor, with the studio at the back above it. Hughes also had to work out how to combine a "shopfront" for the theatre with boring necessities such as loading entrances and front doors.

To do that he created a huge glass bay window for the first-floor café, which, Hughes explains, "unlocked a lot of ideas about projecting things on to the glass".

Other issues include removing the roof and adding an extra 3m of height to accommodate three new flats, and working out how to fit two separate theatres into such a tight space. "You can usually use about 75 per cent of a space when you take into account the M and E [mechanical and engineering]," Bond explains when asked how they squeezed it all in. "It's the stuff that you and I don't give a shit about, but it has to go in there. What we said is we want all this stuff in there and we'll have to fit the other stuff around it. I've spent – and we worked this out – 10,000 hours with Dave trying to work it out."

Technical innovations on the site include a tension wire grid above the stage for the lighting (a taut mesh which allows technicians to set up lights anywhere in the roof of the auditorium without walkways/ladders); skylights in the two main rooms, which will be blacked out during shows but will light up the room during the rest of the day; and LED wall lighting which can transform the colour of the whole theatre (rather than just the stage). And when the box office opens, it will feature cinema-style tickets from any till and paperless tickets.

Funding all this could have been the hard part, but the Park team had financial backers from the start. Still, they had to squeeze a lot from their £2.4m budget. The problem came when they realised they could put in only three flats, rather than five, to sell. This left a £400,000 hole in the budget which would have to be found to fund an education centre which will be used by local groups such as the Islington Community Theatre. Frantic fundraising efforts, including a gala dinner and Bond's assistant, Charlie, running five back-to-back marathons, are being planned to find the remaining £100,000 or so of the shortfall of the cash.

Oddly, in a time of huge cuts to arts budgets, the Park Theatre isn't the only new theatre building in the capital. The St James, an off-Broadway-style theatre, has just opened near Buckingham Palace while the Yard, in the shadow of the Olympic Stadium opened last autumn in Hackney Wick. Also last year, Belfast opened its rebuilt £18m Lyric Theatre. And work on another brand new venue from the owners of London's Palace and Apollo will begin in a few years in the transformed post-Crossrail area around Tottenham Court Road.

But for Finsbury Park, an area that is changing beyond all recognition, the Park Theatre will provide a stunning focal point. Already 2,000 locals have signed up to hear about the first shows. At the moment, local estate agents may sell the area as being "15 minutes from the West End"; soon, they might have to refer to the West End as being "15 minutes from Finsbury Park".

Sir Ian McKellen will be hosting a charity gala in aid of the Park Theatre's Education Floor Fund on 19 October at Shakespeare's Globe, London, parktheatre.co.uk

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