First of I just want to say that I didn't find this out myself but I felt the need to share it anyway for those who didn't know about this... This is an exploit and I say this because this isn't a cheat... The only benefit you get from the game is the ability to build more...
When I started to build Sanctuary I built buildings for all my shops/bars... Not really paying much attention to the top right of the corner in Workshop mode... Before I knew it I had reached my max size in terms of buildings... In actuality Sanctuary wasn't really that big... I had a lot of settlers coming and no where to put them... I then found out about the exploit to reduce the max size of your settlement... Now I have to say there was a warning about performance issues... I don't know how big you would be able to build before your game became slow...
You need to have about 15 or so weapons in your inventory... it doesn't matter if you're using them just as long as they are in there... You then need to transfer them into the Workshop... (pressing square) then you need to put them back into your inventory... Then drop them... Enter Workshop mode then store the weapons... (circle)... Once you store the weapons you will notice that the size bar will start to reduce... Rinse and repeat...
I really hope that this issue isn't fixed in any patches that are released and I hope this will help out anyone who hits their size limit and want to continue building...