Virtual reality (VR) is often used in small physical spaces, requiring users to remain aware of their environment to avoid injury or damage. However, this can reduce their spatial presence in VR. Previous work and theory lack an account of how the physical environment (PE) affects spatial presence. To address this gap, we investigated the effect on spatial presence of (1) the degree of spatial knowledge of the PE and (2) knowledge of and (3) collision with obstacles in the PE. Our findings suggest that limiting spatial knowledge of the PE increases spatial presence initially but amplifies the detrimental effect of obstacle collisions. Repeatedly avoiding obstacles further decreases spatial presence, but removing them from the user's path yields a partial recovery. Our work contributes empirical evidence to theories of spatial presence formation and highlights the need to consider the physical environment when designing for presence in VR.