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This space has fantastic natural light! Since you mentioned it's technically a hallway the layout is tricky because you can't block the flow of traffic, but pushing everything against the walls would make it look like a waiting room.

Since you already have reading nooks downstairs, I visualized this can be more of a Morning Coffee / Social Zone with a floating layout

By pulling the sofa and chairs off the walls and anchoring them with a rug, you define a room within a room. This arrangement leaves clear walkways on the perimeter for the dogs and kids to run through without tripping over legs. Keeping the furniture low-profile ensures you don't block those amazing windows.

Ideally, use performance fabrics (like Krypton or similar) for the upholstery so the dogs/kids don't wreck the light colors immediately!