Well, if it is still true that approximately 40% of the game is a dungeon crawl then I'd guess that that is saving them a lot of space since the underground areas will probably not be overly detailed, at least compared to the world above ground level (I think it is also slightly "suspicious" that they have released nearly zero screenshots or videos covering the underground levels).
The entire world including the underground is supposed to be about Gothic 2 size (PB never really specified whether this guesstimate includes or excludes NotR). So imagine a world about 60% of the size of Khorinis (or Khorinis + Jharkendar) above the ground. Even if Jharkendar would be included that is still fairly small compared to other games and I think that's where the relatively small install size might be coming from.
And just for the record: I'm not saying that's a bad thing. I'd rather have a small, beautiful and even short game than something huge, epic and boring.