The scene has been set for the construction of the biggest theatre in London for 45 years following a £100m deal to build a 1,575-seat venue at the Olympia development in Kensington.

Trafalgar Entertainment, the theatre operator owned by the impresario millionaire Sir Howard Panter, has taken a 35-year lease on the Olympia theatre site as it bets on the rapid return of London’s performing arts scene after the pandemic, with the option to extend it for another 35 years.

“This really is a once in a lifetime opportunity,” said Panter, who has been in the theatre business for more than 50 years and founded Ambassador Theatre Group, the UK’s largest operator by number of venues, in 1992. Trafalgar, founded in 2017, is the second largest; Ambassador was sold to private equity in 2013 for £350m.

“Developments of this nature are what is needed to regenerate city centres. How are we going to get people back together again if we don’t create spaces that are worth going to?” he added.

The last big theatre to open in London was the National Theatre in 1976 on the South Bank next to the Thames.

The Olympia Theatre will cover five levels with six bars, 17 VIP boxes and six high-speed lifts. It will also have more than 70 toilets, which Panter described as often being a “disgrace” at some of the capital’s more aged venues.

Exterior of Olympia Theatre

The overall development of the 135-year-old Olympia exhibition site is expected to cost its owners, the real estate investor Yoo Capital and private equity firm Deutsche Finance International, £1.3bn. It will expand Olympia’s footprint from 800,000 to 2.5m square feet and will also include CitizenM and Hyatt hotels and an events space run by the entertainment behemoth AEG.

John Hitchcox, chair of Yoo Capital, which has traditionally focused on residential projects in industrialising nations, said it was the firm’s biggest capital investment to date and that he hoped the development would be valued at more than £2bn after completion.

The investment comes at a crucial time for London’s theatre scene, which has been ravaged by the pandemic. The UK theatre industry typically makes revenues of £1.35bn annually, a figure that fell to almost zero in 2020. According to a survey of 186 theatre groups by the trade body UK Theatre, 28 per cent reported losses of more than £1m last year.

Trafalgar said that it had only managed to stage one production for 10 days since theatres were initially closed in March 2020, but that it had sold £4.5m worth of tickets for productions opening this summer.

The project also marks confidence in the UK capital’s ability to regain its status as a world leading cultural hub after fears that losing its easy access to Europe following Brexit would diminish London’s performing arts.

“I don’t think London will change from being one of the most important cultural melting pots in the world and, Brexit aside, I believe it is still a great diverse community with a creative industry that is second to none,” Panter said.

Yoo Capital and DFI acquired the Olympia site in 2017 for £297m and had 225 shows planned in 2020 before the pandemic forced the exhibition hall to close. Goldman Sachs is financing the scheme with an £875m loan agreed last February.

Hitchcox said there had been fears that deals to develop different parts of the project would fall through but “everyone was very much committed”.

Olympia has had a colourful history, hosting everything from the UK’s first computer show to poultry exhibitions as well as musical icons such as Pink Floyd and Jimi Hendrix.

The theatre is due to open with its first production in 2025.