I trust you have obvious accommodation for guests to dry their hands....otherwise they will use the towels you have. I can't imagine putting anything in my powder room that I wouldn't expect guests to use....I have mouthwash with plastic cups, hand lotion, soap, towels, tissues, spare TP...it's all for them. I've thought about using the paper guest towels, but we are on a septic system and I'm afraid people may try to flush them and cause all kinds of plumbing issues I'd rather not have....so instead I have plenty of towels to be used. Otherwise, as suero suggests, tie them up. Perhaps you can compromise with usable towels...perhaps in white cotton so they can be washed many times without issue... paired with a tied up decorative.

Your set-up, incl small size looks like ours. Be careful if you hang a bar or ring on the wall to the left of the sink. We were going to hang one there in the MB, but the towel would have hung over/ into the sink (we didn't want to hang it extra high). Here's what we did. It works for me (DH uses the other bathroom). Not the ideal location, I admit, but not too many options. Window on opposite wall, with a door that would cover most of the towel bar if we did hang it under the window.

In one bathroom I got the tile-in semi recessed toilet roll holder and tile-in ceramic brackets that for a towel bar in the shower. They blend with the tile. In one bathroom I had a custom, fully recessed toilet paper and spare niche fabricated out of Corian that fit in with the tile layout and matched the tile. For towel bars in this and another bathroom I used Kohler Purist Grab Bars. I like using grab bars that are well anchored for towel bars because first, they are more sturdily mounted. and second because they can be used as grab bars for assistance now or later in life. Because I obsess about such things I also bought some extra so if I want to add some in 20 years I will have ones that all match. I personally do not like fully surface mounted toilet roll holders, so where the recessed ones went, and where all the towel bar/grab bars went required that this be thought about in the Framing stage of the bathroom. Because the recesses and framing can't interfere with each other and you need extra blocking for proper grab bar/towel bar mounting. I think one of the reasons that surface-mounted ornamental sets including the toilet roll holder and such became more popular is that nobody needs to think about where it goes ahead of time. I rarely see an old bathroom (1920-1970) that didn't have recessed or more built-in/permanent looking roll holders and stuff. (Especially toilet roll holders). Partly it was because the area allowed for the toilet was smaller, too (12" on center vs. 15-18" today), but part of it is that nobody needs to think about it until it's time to stick it up. I work in an office building and they remodeled the lavatories and went from stalls to cubicles where the toilet roll holder was surface mounted and one by one each one was pulled out of the wall because people used it to hoist themselves up. They had to change them all to those big commercial style holders. Long answer, but in general, I like grab bars for towel holders and I like them to be more ornamental and coordinate with the bathroom rather than the utilitarian sort. Kohler options are pretty expensive, especially Purist, but I figure I am doing it once.

Totally get the frustration! Both our bathrooms are small and we had a lot of "where do we hang the towel' dilemmas too, especially as we have a pocket door in our main bathroom so can't put things on the back of it. We ended up with a small towel bar mounted over the vanity on an adjacent wall, and a heated towel rack on the one free wall so that we could hang multiple towels vertically and folded and they would actually dry. We almost had a TP holder mounting crisis and the place we've had to mount it is strictly much closer to the toilet than is recommended, but it looks and feels fine. A folded towel right on top of the toilet isn't super appealing, but a nice shelf above the toilet with a folded towel on it might work? My parents have two tiers of towel bars (not hooks) on the back of their bathroom door. which is in fact pretty functional. Annoying you can't get a robe hook in beside the shower!