Dearest Dieter, You are asking the wrong question. This isn't about balancing and there is no such thing as a Krautrock superstar, except for, like, whoever from Can is still presently alive. This is not about giving up on ambition, it's about scaling your dream to better fit your life. That room is a holdover from your pre-parental life, a relic of old freedom. As someone whose workspace became a playroom two years ago, I understand. But it's unfair to be all A Room Of One's Own when there's a little guy in a crib in your bedroom as result.
If you keep looking at this as "the kid" vs. "my expression of self" this transition is going to be really painful, especially since there is plenty of sacrifice involved in parenting a young child already, it's hard not to cling to things that feel totemic of the old life. It'll also make you resent what's happening rather than just seeing it as a transition. This isn't happening because you are almost 40 or your music is bad or that you are a failure. As parents the main thing we have to teach our kids is how to live right, just being "done" with music would make you miserable and hobby-less, and you don't want to example that to him. Your motivation here only has to be that you are seeking a reasonable solution that works better for everyone: you both need a place to play, essentially. So chew on that, because I am about to offer some radical advice.
First, your deadline is the new year. You are going to honestly evaluate all your gear, guitars, pedals et. al. and see what is the stuff that you use every time you make music. What's the crucial stuff? What's the stuff you use for sure once a month? That is the stuff you are going to keep. You are going to eBay/sell everything else because if you have been playing for 20 years, you know plenty of other musicians who would reasonably loan that item to you for a week if you need it to record. The goal is to get everything you need to create (save for a guitar) into two large suitcases/underbed storage thingers. No more. Call in some judicious help if you find you are being sentimental. If there is something you really cannot part with (a rare pedal or something akin) but never ever use, maybe think about a long term loan to a trustworthy friend.