What causes economic obsolescence?

Economic obsolescence refers to a decrease in the value of a property caused by factors that are external to the property itself. These external factors can include changes in the surrounding neighborhood, economic downturns, shifts in market demand, or new regulations that negatively impact the desirability or functionality of the property. For instance, if a new highway is built that reroutes traffic away from a commercial area, businesses in that area may experience reduced foot traffic, leading to a decline in property values.

This differentiates economic obsolescence from other types of obsolescence that are related to the property itself, such as wear and tear, which pertains to the physical deterioration of a property due to usage over time, and poor maintenance, which can directly affect a property's condition and performance. Environmental damage, while potentially contributing to economic obsolescence, is typically considered a specific type of external factor. The key element defining economic obsolescence is that it arises from external influences rather than from the property's inherent attributes or its upkeep.