You already have been well guided!
Try to settle a space aside for your guest races. Over time, you will need a bigger settlement, but you will also gain provinces through completing provinces, and in your research tree. A little example from a dwarven city:
You can see how the player connected the road to the Dwarven Portal Level 4, and everything else is connected via tracks. For a starters, this player might have enough, but as you go through chapters, you are going to need a lot more space!
The good thing is that you will manage to always have the "settlement area".
Psss, psss: Between chapters, once you sell your entire settlement, consider re-arranging your city to prepare it for next chapter, it will make your life easier! Have fun, and don't hesite to ask any questions you come...
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