Definition of 'Functional Obsolescence'
A reduction in the usefulness or desirability of an object because of an outdated design feature, usually one that cannot be easily changed. The term is commonly used in real estate, but has a wide application.
Investopedia explains 'Functional Obsolescence'
An original house in an older part of town that has two bedrooms and one bathroom could be considered functionally obsolete if all the other original homes in the area are torn down over the years and replaced with five bedroom, three bathroom houses. Because the old house does not have the features that most modern buyers want, it is said to be functionally obsolete, even if it is still in good condition and is perfectly livable.
As another example, many home entertainment centers became functionally obsolete as flat-panel televisions replaced bulky analog televisions. The old entertainment centers were too deep to accommodate the new, thin televisions.