Samantha B I just completed my kitchen Reno in Perth. My pantry was also bricked up like yours. Literally doubled the space by getting rid of it but we found out after that the pantry was structural & we had to put an extra support beam in the roof instead ($800) so be careful of that! We completely moved the plumbing, gas & electrics & it only cost a few hundred! So don't be afraid to do that as long as u know decent priced tradies! We ended up doing nearly everything ourselves & went with a masters flat packed kitchen & sourced our own stone benchtops dirt cheap ($2500 installed for a 2m bench & a 1.5m island each with one waterfall edge.). Heres before & after pics.

A big island would be good, if you can afford that space in front of the fridge and dishwasher. Microwave can go up higher in the cupboard space to give you a bit more bench top area, or can go under the bench of the new island.

Hi Lisa I have recently put in a brand new kitchen and also decided not to move the fridge, sink, or cooktop. Our cabinet maker came up with a fantastic small pantry which he calls a 'blind pantry'. In the photo, it is the cupboard to the right of the sink. This corner was previously a low cupboard and totally useless because you couldn't reach into the corner so wasted space really. My new pantry has a reinforced floor and you take a small step up into it, which means that a shorty like me can reach every shelf. It is by far the making of my new kitchen because I not only have one cupboard for food (which I never had before), but also somewhere to store my large appliances, box of red wine, container of plastic bags to be reused etc. In the other corner (under the toaster), the cabinet maker recommended blocking this corner off rather than having another low, corner cupboard which I wouldn't be able to easily access. So along that side we have all drawers, in three difference depths. Now that I have more space that is easily accessed, I find I keep the space very tidy all the time, simply because I can quickly and easily put things away rather than having them sit on the benches. A few months in, the kitchen is as tidy today as it looks when I took these photos - easy, peasy. Although more expensive I am pleased we decided to rip the old kitchen out and begin again. In my opinion, it's been money well spent. I'm not sure where you're based but if in Brisbane, I would highly recommend the company we went with. Good luck with everything!

Hi Meela, yes I understand. If you demolish the small nib wall that is behind cupboards and sink, then I would move sink just a bit to the right, more under the window, to give you counter space. Then as per your plan, wrap the new cabinetry around the wall into family room. I think your colour choices are good. Including the wood to blend with other wood in the home. Just a note, if your planning to renovate any other parts of your home, make sure you have the whole renovation plan listed, so you don't have to redo your renovations at a later stage. Well done, you have a great house.