What you are looking for is a B-Vent gas fireplace. These gas fireplaces give you the real flame, wall switch and remote control option but with much lower heat output. Try looking at these at lennoxhearthproducts.com Look at the Crestline 36" or 42"

For health reasons, I Would go with electric if it were my home. Also, your home will stay cleaner with electric. If your power source is hydroelectric, solar, or wind turbines, electric will be better for the environment. https://www.thoracic.org/patients/patient-resources/resources/burning-indoor-fuels.pdf

You do realize a garage is not built to be a living space so not as simple as just using the space and decorating it. This is basically a new addition to the home so permits and do it right .You need an architect to design this so it does not scream garage conversion which is more difficult than you might imagine Here you need to post pics of the house and this sapce and how it relates to the new garage.

The area inside the bump out is only partially insulated. There is no insulation on top so the cold air just comes in through the vented soffit. If there is going to be an electric fireplace inserted, can we close off the soffit or do we need to leave it vented?