"We still don't know ourselves, " says Emelie Fitzgibbon, Graffiti's CEO.

Well she might look about her in wonder. Until February of this year, Graffiti, the only professional educational theatre company based in Munster, worked out of the icy-cold, leaking, not exactly fire proof Weighmaster's House, in Cork city's Shandon area. The house, part of the historical Butter Market Complex, had always had enormous potential as a theatrical space, but despite making a substantial submission to the Government's ACCESS scheme, Graffiti had long been unable to secure the capital funding to make the building habitable.

The conditions restricted the company's work. The cold space proved difficult to operate in administratively, while the leaking roof meant it couldn't stage in-house shows, or accommodate those schools without the space for Graffiti's touring programme. It also meant that, while the company continued to reach out and engage with schools in the immediate and wider area, its work was done almost in the dark, with little public profile.

The new building changes everything. Just as the daylight that floods through the chapel's windows illuminates previously hidden aspects of the building, the scope and potential of Graffiti's work has expanded, almost overnight.

The chapel's various rooms give the company a much longed for rehearsal and workshop space, complete with cushion flooring that allows for dancing, jumping and tumbling. Upstairs the building has a production room, a space for a writer-in-residence, and a dedicated space for the company's attached youth theatres.

Downstairs, alongside the spacious, comfortable administrative section, there is a board room, and even more amazingly, a kitchen. The piece-deresistance, however, is the former chapel area itself, now transformed into a theatrical auditorium with the correct flooring and acoustic conditions . . . a quite stunning, magical space for children's theatre.

The decision to offer the chapel to Graffiti will likely prove a visionary one. Passed by the nuns . . . in another public-spirited move . . . to Cork city council, the building could easily have gone the way of apartments, a pub or a hotel. We live, after all, in an era where rent prices and commercial concerns are making it increasingly difficult for arts organisations to remain within the boundaries of a city centre.

Cork city council's expressed aim, however, is to build up the city as a vibrant, living entity, and to reutilise historical buildings in appropriate ways.

The Convent House had already been converted into a residential foyer for young people with housing difficulties.

It seemed a natural move for the creative, community-spirited Graffiti to come to live in the chapel next door.

Walking through the building, there is an almost visceral sense of the positive spirit of collaboration that went into the creation of the project.

Graffiti enlisted the help of local architects Hudson Associates, with whom it had already worked on its ACCESS submission, and whose past experience in theatre design includes the construction of UCC's Granary Theatre, a dynamic and successful theatrical space. Paul Hudson, director of the company, worked voluntarily on the project, such was his instinctive feeling for its importance.

"I was happy to do it, " he says. "Graffiti are a very inspirational company. You would be enthused by them." Hudson's own interest in Graffiti fused with Cork's time, last year, as European City of Culture. "Because of the good times, we have been very busy, and so we had the wherewithal to make a gesture to 2005, " he says.

The project also coincided with Hudson's interest in working with old and existing buildings. His practice had already been involved in the refurbishment of the 18th century Frank O'Connor house, which now houses the Munster literature centre. The chapel, with its distinctive features and unique atmosphere, presented a different challenge. "The building is not a protected structure, " says Hudson, "but it is a very nice building and a very good piece of architecture. Our philosophy in working with existing buildings is to make gentle interventions in a given space."

The consensus is that this has been achieved. Charming nuggets of the old building are everywhere: from the old doors and floors to the sacristy upstairs and, in the chapel itself, the old stained glass windows and entrance doors. "The place has been transformed, " says Hudson, "but you still feel its sense of history. There is a respect for its original use and identity."

Both Hudson and Graffiti are keen to heap praise on Cork city council and, in particular, city manager Joe Gavin, for their help on the project. "Things like the disabled ramp outside just appeared, " says Emelie Fitzgibbon, "and they are also creating an amphitheatre for us in the garden." The Arts Council, too, played its part, stumping up a grant of 100,000, which proved vital in making up a shortfall at the end.

The public-spiritedness behind this project is a positive sign for arts and culture in Cork and, interestingly, comes at a time when developer Owen O'Callaghan has announced he will once again work in partnership with Triskel Arts Centre in Cork City, providing a temporary exhibition space for international exhibitions over the summer months. Initiatives such as these show a cognisance that the arts do matter, not just in themselves, but for the impact they can have on a city's growth and vitality.

Paul Hudson says as much in his submission to the AllianzBusiness2Arts award, for which his practice and Graffiti are shortlisted: "We do not perceive this involvement as sponsorship but rather as a contribution of our expertise to a very generousspirited company; as a small gesture of appreciation for the good times which we have enjoyed over recent years; and as a recognition of the huge contribution that the arts make to life quality. Not so much sponsorship as gratification."