M.M.
I lived in a one bedroom with my daughter until she was 7 yrs old. At first we had the same arrangement as you. When she outgrew her crib, I got her a twin bed and let her pick out her own bedding. We shared the bedroom. We had the beds right up to one another and almost every night she ended up in my bed which was totally fine with me. I loved having her cuddled up to me.
It actually worked out great and by the time I remarried she was so excited to get her own room; that she transitioned smoothly.
At times I miss those days we co-slept!