I love your outside entertaining area. It does need a color that would complement but give the area a focal point. I like the darker red,orange colors you may find in natural. You could dress up the table with accessories and place cushions in a complimentary color on the benches. Colored potting containers would also bring it all together. I like the uplighting here in the photo you could place along the back fence to add drama. Your area reminds me of Modern mediterranean landscaping.

The first thing I would do is switch your light fixture to track lighting. That way you can focus the light onto that wall much like what is done in an art gallery. I also think that may stop the reflection you are getting. I think putting cabinets on the long wall will really close in the space. I would make your red wall your gallery wall. I'd frame everything in white so they "pop" off the wall. The problem with the other wall being the gallery wall is that it's just to narrow. You can't really stand back far enough to see the art.

We make self-adhesive fabric wallpaper that is great for feature walls - and you can install it yourself! :)

Sorry the pictures came out in a different order, hopefully you can see which is the alcove space