The best new building in London, according to the Royal establishment that bestows such honours, is not one of the City’s jauntily sculpted skyscrapers, nor a glitzy cultural beacon, nor even a flagship development of desirable homes. It’s an old shoe polish factory, converted into an unassuming charity office building, tucked away on a side-street in Vauxhall.

The Foundry, designed by 36-year-old Lynton Pepper of small practice Architecture 00, punches well above its weight in both architectural ingenuity and the social impact that it will bring, and was a surprise winner of Riba’s London building of the year award.

Developed by the Ethical Property Company, with Barrow Cadbury, Lankelly Chase, Trust for London and Joseph Rowntree Charitable Trust, it provides a new home for 25 different social justice and human rights organisations whose work tackles everything from renters’ rights to solar-energy aid and the rehabilitation of addicted prisoners. Now brought together under one roof, in a loose-fit building specifically designed for discussion, collaboration and exchange of ideas, their work, says the company’s director Susan Ralphs, can be much more than the sum of their parts. And it doesn’t do them any harm to be working in slick new premises that exude a level of gravitas and professionalism greater than the £20 per sq ft rent would suggest.

It says something about them to visitors and potential funders. It shows they’re serious Susan Ralphs

“After just a few months of being here, some of our tenants have already said the building gives an extra weight and confidence to their organisations,” says Ralphs. For just £5.2m, an extraordinarily tight budget for a project of this size, the architects have crafted a place that speaks more of angel-funded start-up incubator than shoestring non-profit hub. “It says something about them to visitors and potential funders,” she adds. “It shows they’re serious.”

The atrium has the feel of a leftover gap between two docklands warehouses Photograph: Rory Gardiner

Ralphs is sitting in the light-flooded atrium carved out between the old factory and the new extension, the gnarled brick wall on one side, opposite the gently zig-zagging timber balustrades of the new office landings on the other. It is an alluring space that has the as-found feel of a leftover gap between two docklands warehouses, a backyard of sorts where people naturally congregate and converse. It is dotted with tables to Pepper’s own design, each milled locally from half a sheet of plywood, from an open-source template, making them much cheaper than standard catalogue furniture – and a good deal more beautiful, too.

To one side is an open auditorium, with a big glass wall facing onto the street, while an ethical cafe will soon materialise in the foyer to lure people into the building, along with a public programme of arts and educational events organised by energetic local outfit Gasworks, who are also now tenants of the building.

The Lilian Baylis school – once one of the country’s worst performers, now Ofsted outstanding in everything – stands across the road, and Ralphs is keen for their agendas to overlap, with a programme that addresses the entire community: “We are conscious that the building shouldn’t just be an oasis of Guardian-reading types.”

Pepper’s description of the project is as straightforward as the budget was tight. “It’s basically a series of concrete shelves that you can put stuff on,” he says. The floors are arranged as long horizontal slabs that protrude beyond the facade line and extend at either end to provide a series of outdoor terraces screened with metal mesh, like the decks of a brutalist cruise ship. The windows are cleverly angled, so as to direct views away from the residential neighbours, and are framed with “champagne-anodised” aluminium, bringing a touch of spartan glamour alongside the raw concrete.

What looks like a cluster of garden sheds sits on the roof, with a pitched silhouette that echoes the industrial building behind, providing a trio of meeting rooms that can be used by tenants and hired out for events. It is designed so you could simply add another shed if needed, while the outdoor terraces – which also double-up as the escape route – will be used for touchy-feely things such as community gardens, bicycle repair workshops and bee-keeping.

The auditorium opens on to the public atrium and has a glazed wall facing the street Photograph: Rory Gardiner

Inside, it is a model of how a tiny budget can go a long way. The concrete soffits are left exposed, saving money on expensive ceilings and providing good thermal mass – just one of the reasons the project achieved an “excellent” environmental rating by BREEAM. There are recycled carpet tiles that look brand new (“probably from the kind of office in the City that changes its carpet every month,” says Pepper), a limited number of standard details for all the main junctions, to make the job easier and cheaper for the builder, and the chimneys in the old factory have been reused for the new ventilation system.

Walking through the building, it is evident that care has been given to every moment, from the kinked landings that provide social working spaces and frame views between the office floors, to the layout of exposed electrical ducts on the ceilings. It has all been designed to Ralphs’ brief: that “it should feel nice, but not too opulent”.

For Architecture 00 (pronounced “zero zero”, not double-O, despite having a collaborative structure akin to a collective of special agents – each member free to initiate and work on their own projects and receive due credit), the Foundry joins a collection of small but intelligently formed buildings, including Soar Works and the elegant Manor Works community enterprise centre in Sheffield, which was decreed “Yorkshire building of the year” last year. Known more as strategists and researchers since their foundation 10 years ago, the practice’s recent built projects have grown out of a deep interest in what it terms the “civic economy”. It might all sound suspiciously Big Society (indeed their compendium of community case studies features a foreword by David Cameron), but it goes beyond the hollow rhetoric of providing a civic sticking plaster to cover the gaping wounds of our retreating state.

It is founded on faith in the power of collaborative working in fluid “social ecosystems” – which, once you get past the jargon, simply means that people talking and working in the same space produce better results than a world that’s siloed and hidden away behind closed doors.

The architects themselves work out of the Impact Hub Westminster, a co-working space they founded and designed, which embodies these thoughts. It is full of a lively mix of social entrepreneurs and it provides an open laboratory for the practice’s many research strands, from an open-source Wikihouse construction system to their emerging plans for a self-build housing revolution.

In the Foundry, they’ve put their architectural money where there mouth is, crafting a project that embodies their social rhetoric in beautiful, functional, life-enhancing form.