In today's competitive real estate market, the concept of Highest and Best Use (HBU) stands out as a key strategic tool. Especially in rapidly growing areas like the Middle East, determining the most effective use of real estate assets is essential for success.
Real estate – a key economic driver
At its core, HBU employs a meticulous, analytical process to identify the most optimal, legally compliant, and economically viable use of a parcel of land or property. The global real estate market continually evolves, with specific regions showcasing unique dynamics. According to Oxford Economics, even when the mortgage remains very high, global construction activity is forecasted to increase by 0.5% in 2024 to USD 9.6 trillion. This marginal growth showcases the importance of the real estate sector and underscores the importance of tools like HBU studies.
The Middle Eastern real estate market, especially Dubai, offers a compelling illustration of this dynamism. Driven by visionary strategies to diversify and reduce oil dependency, countries like the UAE have championed large-scale infrastructure and real estate projects. According to ValuStrat's Q3 2023 real estate report:
- Around 91,356 apartments and 23,401 villas are presently under construction in Dubai, with anticipated handovers within the next five years. Significantly, 19% of these projects are concentrated in Dubailand, while another 18% find their home in Mohammed Bin Rashid City.
- Office spaces are also seeing substantial growth, with an estimated 252,783 sq m (2.7 million sq ft) GLA poised for completion in 2023 and a further 12,680 sq m (136,500 sq ft) GLA scheduled for 2024.
- The hospitality sector isn't far behind. Twelve hotel projects are currently under development, promising an addition of 4,100 keys by 2025.
- Furthermore, recent infrastructural developments like the DAMAC Mall, boasting a generous 10,219 sq m (110,000 sq ft), have enriched Dubai's retail landscape. Located in DAMAC Hills, this mall anticipates an impressive annual footfall of approximately 1.3 million visitors.
HBU study - The value proposition
The foundation of any successful real estate venture lies in its ability to generate substantial returns while adding tangible value to both investors and the broader community. This is where HBU studies become invaluable.
- Optimising returns: Real estate is a high-stakes game. As land becomes an increasingly valuable commodity, especially in prime global and Middle Eastern locations, the pressure to extract the utmost value from each project intensifies. HBU studies act as a compass in this challenging terrain. By identifying the most profitable use of a piece of land, they ensure that every development is positioned to achieve maximum financial returns. This goes beyond simple profit calculations; it's about understanding market demands, future trends, and demographic shifts to create properties that remain lucrative in the long term.
- Adding value to communities: A successful real estate development doesn't just benefit investors; it can uplift entire communities. By pinpointing the optimal use of a plot, HBU studies can highlight opportunities to create community assets, whether it's affordable housing, commercial hubs, or recreational spaces. This enhances the development's appeal and contributes to its long-term sustainability and relevance, further driving up its market value.
- Risk mitigation: The volatile nature of the real estate market means that every decision carries inherent risks. HBU studies offer a buffer against these uncertainties. By providing a detailed analysis of what is legally permissible, physically possible, and financially feasible, these studies help developers avoid costly missteps. This ensures that investments are safe and positioned for growth, even in fluctuating market conditions.
- Informed decision-making: The real estate industry is awash with tales of promising projects that faltered due to lack of foresight. HBU studies counteract this by grounding decisions in data, research, and expert insights. This ensures that every development is not just a response to current market conditions but also a strategic move anticipating future shifts, cementing its value proposition for years to come.
By integrating these facets, HBU studies provide a holistic framework that ensures each real estate development is a financial success and a valuable addition to the fabric of its community.
Role of HBU consultants in real estate development advisory
HBU consultants are central to this process. Their expertise lies in gathering and interpreting data, understanding market trends, and offering future projections.
- Holistic analysis: These experts provide a comprehensive view, considering economic trends, regulatory changes, and regional specifics, especially relevant in the Middle East.
- Localised insights: While HBU principles are universal, their application is inherently local. For example, a consultant familiar with the Saudi real estate market will offer different insights compared to one focused on European markets.
- Strategic partnerships: HBU consultants often become integral partners in a project, guiding it from its initial stages to completion, ensuring that developments align with the insights provided by the HBU study.
The world of real estate is vast and ever-changing. As developers seek to push boundaries, especially in regions like the Middle East, HBU studies, backed by expert consultants, provide the roadmap to success. Whether it's determining the feasibility of a new luxury hotel or gauging the potential of a residential project, HBU studies serve as a strategic compass, guiding developers and investors in maximising the value of every plot of land. This ensures that future developments are not just impressive in design but also strategic and well-informed.