When considering the economic life of a building, which factor is critical?

The projected market demand is crucial when evaluating the economic life of a building because it directly influences the building's ability to generate income over time. Economic life refers to the period during which a property is expected to be economically viable and can produce cash flow that exceeds its operating costs. If there is strong market demand for the type of property in question, the building is likely to remain occupied and profitable for a longer duration.

In contrast, if market demand decreases, even a well-constructed and architecturally appealing building may struggle to attract tenants or customers, leading to higher vacancy rates and lower income potential. Understanding market trends and demand is essential for appraisers and investors as it informs their decisions regarding property investment and management strategies.

While the initial cost of construction, architectural style, and annual operating costs are also important factors in a property’s overall valuation and sustainability, they do not directly determine the economic life in the same way that projected market demand does. If demand is high, a property can justify its existence despite higher costs or less popular designs, which highlights the primacy of market demand in assessing economic viability.