I may be wrong but I don't think this has anything to do with dataverse storage.
I think it's simply that you currently have workspaces assigned to a capacity which has expired. Rather and unallocating everything it's giving you a chance to renew the capacity. If you wish to switch to Premium per User or Pro instead of the premium capacity you need to reallocate the workspaces in the workspace setting page or via workspaces in the tennant settings.
I would imagine if they've not already stopped working they will do.
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