The best way to make a small space look larger is to avoid the tendency to add in too much furniture, or make it too large-scale. You need pieces that offer you enough seating, but with smaller profiles in both your living and dining space. Look for multi-functional pieces with storage, keep the wall color the same in areas that flow together, and use the walls for vertical storage and display instead of relying only on freestanding pieces. Look for furniture retailers that advertise "apartment size furniture," and see Houzz Photos under "small space living" and "vertical storage? for ideas. You can use art, an area rug or similar to decide your color scheme. Your apartment really isn't that small, fortunately, by big-city standards.

I'd do option 2 myself. Technically I see an option 3- putting the couch out in the open, diving the two spaces. Couches don't need to be on a wall- you'd just need a smaller couch to do that and still have space to pass through to the other room.

Hi Can you help us out with the how the space looks like to suggest you on this.

Hey there.. maximum space is occupied by furniture in a room, so to physically maximize place you should go for fusion furniture like combining dining table with sofa so that you need two seperate spaces for each of them. I have done such a combination in a residence and ot worked out amazingly. To visually make it larger use of mirrors on walls, nude colors and proper lighting can really help. I would really recommend to have seperate space for toddler and let the kid create his nuisance and clutter and reuse the playpen may be alongside entrance door. Which can be later remodelled to reading space or other utility.