Same here, I seem to have that problem * every single time * Xcode gets updated - right now I have 34 GB available on my HD, and Appstore says that the Xcode 12.3 update needs 11.6 GB - yet when I tried to install, I get "Not enough disk space". I reckon there is some decompression of downloaded files going on, but 34+ GB available space not enough disk space is a ludicrous management of resources on Apple's part. I guess my only option is to uninstall Xcode first and then re-install the latest version from scratch. Apple, you guys are the experts - this is the best you can come up with..??? What a shame.

Here's what helps: In the Apple Manu, go to About this Mac > Storage > Manage > Developer (nice little Easter egg hunt, well done Apple!) Look for older iOS variation you don't need, those can easily take up a good number of GBs There are also big size options "Xcode Caches" and "Project Build Data and Indexes", though I'm not sure how much trouble might be caused by deleting those Lastly, uninstall Xcode before installing a newer version There also is a free ("suggested tip-ware") app named DevCleaner which essentially appears to look for the same files as described above Some more proactivity on Apple's part on this would certainly be useful though. To just leave a user with a "Not enough disk space" error message upon trying to update Xcode when there are dozens of available GBs on the drive is not exactly helpful.