What does the term 'economic obsolescence' refer to?

Economic obsolescence refers to a decline in property value that arises from external factors rather than issues intrinsic to the property itself. This can be due to broader economic conditions, changes in the neighborhood, changes in local or regional industries, or factors such as zoning changes, increased crime rates, or a decline in demand for the area. Unlike physical deterioration or functional obsolescence, which are related to the property's condition, economic obsolescence is entirely linked to outside influences that negatively impact the desirability and value of the property. Understanding this concept is crucial for real estate professionals assessing property values and advising clients or making investment decisions, as it highlights the importance of the surrounding market environment.