I am working towards a PhD. My supervisor and I decided upon a topic which interested both of us. I did an exhaustive literature survey, and found that there have been heavy work in this area in the past 2-3 years. The problem statement we started with seems to have been primarily solved, and now extensions to those are appearing in top journals and conferences.
Now, he feels that the work remaining in the area is not worth a PhD so we should look for something else, but he still asked me to explore the area. Now, I am clueless what exactly I am supposed to do and where to look for new problems (given that I have already invested my first year into this along with the course work). Is it normal during the PhD that the problem that you expected to have not been mostly worked upon, already has so much work done ?
Now, in this case, how should one proceed to look for new problems or extensions of the problem that are worth a PhD ?
My area is Computer Science.