Highest & Best Use: Unlocking the Full Potential of Real Estate Assets

Every plot of land and every building has a use that would make it worth the most. Too often, that use is never tested. Land is developed into whatever was planned years ago. Buildings keep the use they were given at handover, even as the city changes around them. The cost does not appear on any statement — it is the value that was never created.

Highest and best use (HBU) analysis exists to close that gap. It is the discipline of testing every realistic option for a site or building and identifying the one that delivers the greatest value within the rules. For landowners, developers, funds, endowments and government entities in Saudi Arabia, it has become one of the most important decisions to get right before 2027.

What is highest and best use?

Highest and best use (HBU) is the reasonably probable use of a property that is legally permissible, physically possible and financially feasible, and that results in the highest value. The International Valuation Standards define it as the use, from a market participant's perspective, that would produce the highest value for an asset.

In practice, an HBU study answers one question: of everything this site or building could become, which option creates the most value — and can that option actually be delivered?

The four tests of highest and best use

Every candidate use must pass four tests, in order.

1. Legally permissible. Is the use allowed by zoning, land-use plans, building regulations, height and density limits, and any title restrictions? In Saudi Arabia this means checking municipal regulations, master plans and any special controls in the area.
2. Physically possible. Can the site support the use? Size, shape, frontage, access, topography, soil conditions and the availability of utilities all shape what can be built.
3. Financially feasible. Will the completed use generate enough value or income to cover the full cost of delivery and a market return? This depends on demand, absorption, pricing, construction costs and financing.
4. Maximally productive. Of the uses that pass the first three tests, which produces the highest land value? This is usually measured by comparing the residual land value of each option.

The order matters. A highly profitable use that is not permitted, or cannot be built on the site, does not qualify.

"As vacant" and "as improved"

HBU is analysed in two ways. As vacant asks what the land should become if it were empty and ready for development. As improved asks whether the existing building should be kept as it is, renovated, converted to another use, or demolished and replaced.

When the value of the land as vacant exceeds the value of the property as improved — a test that also appears in every highest and best use appraisal — the existing building is no longer the best use of the site — a strong signal to consider redevelopment.

When do you need a highest and best use study?

• Before buying land — to confirm that the price reflects what the site can realistically become
• Before designing a development — to choose the right use, mix and scale before costs are committed
• When holding idle land — to decide whether to develop, partner, sell or hold as fees on white land rise
• When an asset underperforms — to test repositioning or conversion against keeping the current use
• For endowments and waqf assets — to balance sustainable income with long-term preservation and mission
• For government and public land — to support allocation decisions with evidence
• After a major change nearby — a new metro station, road, zoning update or giga-project

HBU study vs real estate feasibility study

Question it answers: HBU study — Which use creates the most value for this site? Feasibility study — Will this specific project deliver the required return?

The two work together: the HBU study chooses the right project, and the feasibility study confirms it can be delivered profitably. Skipping the first step risks running a detailed feasibility study on the wrong idea.

How to determine highest and best use: the OPM process

OPM's Research & Consultancy team follows a structured process:

1. Frame the decision — what is being decided, by whom, over what time horizon and against which alternatives.
2. Gather the evidence — OPM's Saudi real estate database, field research and GIS mapping of population, income, movement and supply.
3. Shortlist candidate uses — residential, office, retail, hospitality, logistics, mixed-use or a phased combination.
4. Apply the four tests — legal, physical, financial and maximally productive, with residual land value compared across options.
5. Stress-test the answer — sensitivity to demand shifts, competing supply, pricing pressure, construction costs and timing.
6. Deliver a defensible recommendation — clear enough for a board, investment committee, lender or ministry to act on.