What type of depreciation is referred to as economic obsolescence?

Economic obsolescence specifically pertains to depreciation that arises from external factors that negatively impact the value of a property. This form of depreciation is often beyond the control of the property owner and is typically linked to changes in the surrounding environment or economic conditions, such as the decline of a neighborhood, the introduction of a new highway that alters traffic patterns, or changes in zoning laws that affect property usage.

By distinguishing economic obsolescence from other types of depreciation, it becomes evident that it is unique in its reliance on external circumstances rather than the physical state or usability of the property itself. Wear and tear is associated with the physical decline over time, functionality refers to depreciation due to a property not meeting current market standards or needs, and structural issues are related to the property's physical integrity. Economic obsolescence highlights the importance of external market and environmental factors in real estate valuation.