What effect can local economic downturns have on properties?

Local economic downturns can create a significant risk of economic obsolescence because they lead to reduced demand for properties and can impact the income-generating potential of those properties. Economic obsolescence refers to a loss of property value that occurs when external factors negatively affect the desirability of the property. During a downturn, local businesses may close or reduce their operations, unemployment rates may rise, and consumer confidence can decrease. These conditions can lead to higher vacancy rates and declining rents, ultimately resulting in lower property values.

In contrast, other outcomes such as an increase in property values or improved investment attractiveness are highly unlikely in a struggling economic environment. Similarly, the assertion that local economic downturns usually have no substantial impact does not hold, as the interconnectedness of economic conditions and real estate markets typically leads to significant repercussions for property values during downturns.