The right way is whatever it takes to get him comfortable and keep his curiousity healthy. Rule of thumb is hard to pin with these guys because they really are characters and seem to have personalities that range more like a cat or dog.
I've tried a number of different cage sizes. Right now I keep two of them in a 5'x2'x2' cage, one is two years old and one is three. Same basic locality as yours, and while mine aren't intentionally stunted they seem to have come from a lineage of smaller animals. I'm not saying everyone could get away with this, and certainly not saying I will for very long. I tried it as an experiment and for now it is working, I do have backup caging if it doesn't. I'm also building much larger, more permanent caging for them. But, for what it's worth, my two small adults are far more content sharing this thing than they've been in any cage they've had so far.
Conditions? I change the water two to three times a day. The water dish itself is a rubbermade tote that is just small enough for me to easily lift in and out. Both animals fit in it together, so I consider the size good. I have bedding in the cage that averages four inches deep, and a lot of logs that these two have since arranged how they like. They burrow underneath the logs to sleep, and occassionally to just get alone when they want during the day (the female is, by nature, a little more secretive though she does come out frequently).
The cage is closed on all sides but the front (tough pvc mesh). Hotspot lighting is in there providing two seperate basking areas. The animals roam constantly, but aren't spending all their time trying to get out. Because of the screen they are well aclimated to the presence of people in the house and are puppy-dog tame (though I still don't handle them without gloves).
Unlike previous cages (the combined sizes of which were larger than this single cage) they aren't constantly looking for a way out. That to me is a good indicator that they are comfortable.
I'm not looking to get flamed, and what works for me certainly may not work for you. I'm merely suggesting that while it's really, really fun to give our animals large habitats (you'd probably love my tree monitor setup) and your concern for your animal is admirable, work with it. Pay attention, provide a variety of situations for it and let it tell you what it prefers. If it's constantly trying to get out of the cage you've provided, work with it; provide sight-blocks to make the animal feel more secure, and if it still is telling you that it wants out give it something bigger. Get to know it and it'll let you know what it wants and when you've provided the solution. Simply building a huge box and tossing it in there may not be the solution...you could get lucky, but chances are if you really get to know the critter you'll begin to understand it's likes and dislikes and ultimately be able to modestly provide it with the best home possible.
For water monitors space is never enough. I'm guessing you probably wouldn't be too happy living in the middle of an empty 20,000 square foot warehouse with little more than a bed, a light, and a bathtub. Give it what it wants. Space is a concern, but a secondary one.