We have set up a nursery for our baby which is in the room next to our bedroom. We live in a townhouse and don’t have room to put the cot into our room as it’s small. We would barely have room for a bassinet. The recommendation is to have your baby sleep in the same room as you. Should I be worried that we are planning to have baby sleep in his own room. Why is it recommended that baby sleeps in your room.

Many parents do use a bassinet for the first few months to facilitate room sharing, however, this is not always suitable, for the reasons you suggest.

Red Nose does recommend Room Sharing for the first 6 - 12 months as a way of reducing the risk of Sudden Unexpected Death in Infancy (SUDI)
However, the baby’s sleep environment would take priority over room sharing.
Most bassinets are unsuitable for babies beyond 4 mths of age & a cot is important once baby is rolling.
https://rednose.org.au/article/what-do-we-do-now-that-a-baby-has-started-to-roll-over

Red Nose have the following information
Parents are not expected to observe their baby constantly. 
If your baby is sleeping in a separate room check baby regularly to ensure that the baby remains on the back and the head and face remain uncovered (as baby grows beyond 5-6 months they will move around the cot and roll over; settle baby to sleep on their back but let them find the sleep position they feel most comfortable in. 
A safe cot and safe sleep environment is still necessary for babies older than 5-6 months)

The protective effect of room sharing can be partially explained by increased adult supervision and observation of the baby.
https://rednose.org.au/article/room-sharing-with-baby