How does market demand influence the highest and best use of a property?

Market demand plays a critical role in determining the highest and best use of a property by highlighting what potential uses are financially viable. When demand for specific types of property or usage is high (such as residential, commercial, or industrial), it creates a favorable economic environment that can support development or renovation in those areas. Conversely, when demand is low for certain uses, those options may become less economically feasible.

Understanding market demand allows property owners and investors to make informed decisions about how to develop or utilize their properties to maximize their value. For example, if there is a growing demand for multi-family housing in a particular area, the highest and best use of a vacant lot might be a residential development, as this aligns with what buyers or renters are currently seeking. This connection between demand and economic viability fundamentally defines the highest and best use of a property, making it the cornerstone of real estate investment and development strategies.