Whilst accepting that the passenger experience at LTN is sub-optimal due to the small size of the terminal, I find it astonishing that there has been any discussion about "lack of demand". LTN is quite simply the best-located airport after LHR in terms of catchment area (population within 1 and 2 hour drive times of the airport). There's no argument about this, it's an incontrovertible fact according to numerous airport studies.
To answer DJ6's question, there may be a little more space available round the current terminal, but not really enough to make a huge difference. However, re-use of the existing footprint is possible to make better use of the piers and the old terminal, but finance drives the airport to hold passengers in the main shopping area.