Latvian urban space preserves the cultural and historical values of previous generations and reflects views, traditions and understanding of living space. Today’s people see cities of the future different than now, so it is important for them to adapt the historical environment to new everyday functions and creatively complement it with modern architectural accents that ensure sustainable development, strengthen cultural traditions, promote economic activities and well-being. Innovative urban transformation is not only a mean of preserving the identity of the urban environment, but also enabling local communities to find opportunities to integrate into the global economy. Research object: functionality of public outdoor spaces, urban identity, artistic and landscape values in the historical environment. Research goal: analyzing the impact of innovative urban transformations on economic growth and well-being of local people. Research problem: to preserve historical identity during the development of the contemporary urban environment. Research methods: analysis of cartographic materials, urban planning projects, photo fixations and published information of regional differences, interpretations and novelties in solutions for improving the historical environment in cities. Research limitations: research is conducted during the Covid-19 pandemic, so there may be restrictions on access to materials stored in archives. Applications to practice: research will help to find successful solutions for quality improvement of urban spaces and promoting economic activities of people. Impact on society: tradition-based sustainable environmental improvements have a direct impact on the health and quality of life in society. Research novelty: the peculiarity of innovative transformations of Latvian urban space and differences under the influence of local cultural traditions.