What type of depreciation is most influenced by technological changes in specialized industries?

Functional obsolescence refers to a loss in value that occurs when a property becomes less desirable due to changes in technology, design, or standards that affects its utility. In specialized industries, advancements in technology can render certain features or systems outdated, which can make a property less functional or desirable compared to newer alternatives. For instance, if a manufacturing facility contains equipment that has been surpassed by newer technology, it may be less efficient, which can reduce the overall effectiveness and value of the property.

This type of obsolescence is particularly relevant in industries that rely heavily on cutting-edge technology. As innovators develop more advanced techniques or resources, properties equipped with older technology may experience a significant drop in market demand and effectiveness, reflecting the impact of functional obsolescence. The other forms of depreciation—such as economic obsolescence, physical deterioration, and market value depreciation—address other factors unrelated specifically to changes in functionality within specialized sectors.