Which of the following best describes economic obsolescence?

Economic obsolescence refers specifically to a form of depreciation that occurs when external factors negatively impact a property's value, particularly those related to its location. This can include issues such as increased crime rates, declining neighborhood appeal, or proximity to undesirable developments (like industrial sites or busy highways). Such factors are outside the property owner's control and can significantly reduce the attractiveness and marketability of the property.

In contrast, the other choices focus on forms of depreciation or appreciation that stem from conditions intrinsic to the property itself, such as physical wear and tear or changes in design aesthetics. For example, physical deterioration is about the age and condition of the building, while outdated design pertains to the internal features and layout of the property. Lastly, neighborhood improvements lead to appreciation rather than depreciation. These considerations highlight why the correct answer, which emphasizes locational factors, aptly describes economic obsolescence.