This, remember, is a theatre like no other - a spaceship-like steel and glass module designed in the immediate aftermath of the moon landings, and built back then for £1.2m. It hovers above the cavernous old trading floor of the Edwardian Royal Exchange building, and beneath its triple domes. Conceived as a radical, experimental in-the-round playhouse by the late director Michael Elliot and the stage designer Richard Negri, it has proved consistently successful, and no wonder - the audience is packed in close to the actors, and at the same time stacked up high around them. Thus wrapped around the performance space, it is impossible not to feel part of the action. In Britain, arguably only London's Roundhouse - itself now up for refurbishment, of which more later - can compare.

If one of the secrets of successful theatre is to have actors and audience sharing the same space, breathing the same air, then the Royal Exchange does this more intimately than most. Its surreal siting within its huge old hall adds to its appeal. Outside is the real world of cars, shopping malls, and rain. Then you move through a strange intermediate world of preserved Edwardian grandeur before passing through the glass wall into the sacred arena of theatre. The ritualistic qualities of this progression cannot be overstated: they are hugely important in establishing the right frame of mind for the event that is to take place. As a result, the Royal Exchange has one of the most loyal followings of any theatre in the country.

The bomb blast and the rain that followed did a lot of damage to the old building, but left the theatre pod largely unscathed - a tribute to the literally flexible original design by architects Levitt Bernstein. Ironically, however, those same architects - Axel Burrough is the partner involved - and today's management were already planning to update their creation. Theatrical demands have changed. The theatre was designed for the drama of the spoken word: today visual and sound effects are equally important. Technically it had begun to lag behind newer theatres. The technology of its component-based architecture has also moved on. So many improvements have been made. The total cost of the refit to both parts, plus outside workshops, is £17m. But perhaps the most intriguing change is the way the "spacecraft" - previously clearly separate from the big hall - has now colonised it.