Surround space nearby (7)
I believe the answer is:
enclose
'surround' is the definition.
(enclosing is a kind of surrounding)
'space nearby' is the wordplay.
'space' becomes 'en'.
'nearby' becomes 'close' ('close' can be similar in meaning to 'nearby').
'en'+'close'='ENCLOSE'
(Other definitions for enclose that I've seen before include "Confine" , "Surround, envelop" , "Shut in" , "Surround on all sides" , "Put inside" .)