bright sparks - as a parent I would certainly not take the size of a daycare space as the main reason I pick one place over another. You sound like a wonderful daycare provider and the space should not be an issue with anyone meeting you. Where I was going with what I said is that if I (as a parent) were to pick between 2 daycare's both with what seemed like great providers I would go for the larger space.
In our area I have seen some pretty small places from toys I have bought from them. One of my daycare parents told me their previous daycare would put the children in a small room (approx. 10x10) and put a baby gate over the door and leave them in there to play. They rarely ever came out. Needless to say they didn't stay there long.
I am sure your space will be great!