This paper investigates how new EU sustainability regulations, specifically the EU Taxonomy, Corporate Sustainability Reporting Directive (CSRD), Sustainable Finance Disclosure Regulation (SFDR), and Corporate Sustainability Due Diligence Directive (CSDDD), are reshaping highest and best use (HBU) valuation in real estate. A literature review on HBU, sustainable real estate valuation, and real options theory is conducted. A theoretical model is developed for HBU analysis under regulatory constraints, with formal stochastic calculus derivations illustrating how real options can be valued. Investors must account for regulatory uncertainty and technological change, which elevate the value of flexible strategies. A real options approach enables the quantification of the value of waiting to retrofit, expanding green features, switching asset use, or abandoning projects in response to stochastic factors, such as energy prices or carbon costs. This study integrates the impacts of EU sustainability policy with real estate valuation principles and real options financial theory. A mathematical derivation for real estate valuation under regulatory uncertainty is presented. The results inform appraisers, investors, and policymakers on aligning valuation methods with sustainability objectives. ... Read more