Laundry out there is a great idea - Paint the plwood walls a pale sunshine yellow so you add light - clearly you need some storage and storage and laundry go hand in hand. Put a laundry center on the end wall opposite the hanging bikes. Take out the seating and shelves. Search here for laundry room ideas - a folding shelf under the window with storage below for bins would be nice too. Perhaps an electric radiator for laundry day, and hang some funky lighting in the rafters so it is always light and bright for you. Keep the floor as is- perhaps if you do have a garage for the practical shelving you will have room left for gym equipment too. Might as well lift weights while waiting for the laundry cycle. Sounds like kitchen will also improve. Don't forget hanging some drying lines outside for good weather.

Looks like you have some good light. I would start with the floors. Maybe a floor tile like this one http://houzz.com/photos/3285139 or you stain the concrete. I am assuming you have a place to store everything you have in there now. If not a row of cabinets on one end of the structure to hide every thing plus keep gym supplies such as towels etc...hidden and organized. If you have to run a water line anyway I suggest adding a small sink. Keep the walls white and add inspiring sport art or old resort posters to give you something to look at. For the heat and damp, a space heater and a dehumidifier would help keep the space warm and dry. Good luck.

If you don't have water already run I think it would cost alot of money to run water and a drain to a shed and I personally would hate to carry my laundry outside in winter when raining but maybe you are in a warm climate it could work. You might want to wait before putting alot of money or time into this project. When we first moved in we thought we had alot of storage in our garage and took down our shed. A few years later we have twice the number of tools and bikes, gardening supplies, and kids stuff(bikes, kiddie pool, basketball hoop.) You might find that in a year you might need the storage shed for a shed. I would rent a paint sprayer and paint it all a light color. Paint the flooring or put some garage tiles down add some built in storage. If your kitchen and utility room is full I would store all seldom used kitchen and utility items(covered) in the shed and be done.

Thanks to all for comments and suggestions.

Allison, Scotland has quite a cold climate and it wouldn't be a hassle for me to carry laundry outside but I appreciate that it would be for others......which is something I would have to remember when it is time to sell my house.

I'm still open to suggestions on what to do with the space but it is too big to just be used as a simple shed.