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◊  The art market in 2020: herald of tectonic shifts or status quo?

The consensus among art market observers in regards to the distinctive trends of the art market in 2020 is unambiguous; the most notable ones are:

  • The rebalancing of art history in favor of women and artists of color and the powerful narrative of inclusion and diversity
  • The acquisition frenzy at the market’s most speculative end, pushing newcomers and shooting stars into unseen price territory for that category (this trend partly overlaps with the preceding one)
  • A sustained enthusiasm for young and often untested artists, with limited museum and market validation (according to Arttactic, auction sales for artists 40 and younger at the top three houses surged 54%)
 
Hence, some observers are predicting a shift of collecting interest towards a slew of ever-changing emerging artists at the detriment of traditional blue-chip artist, fueled by social-media induced hypes.
 

But additional considerations need to be taken into account, to get a fuller picture:
  • Supply of blue-chip artists has been constrained, as collectors were wary of uncertain economic conditions and skeptical of the effectiveness of virtual marketing of consigned artworks
  • Boredom during the pandemic and excessive liquidity supported speculative behaviors, that naturally favored emerging artists (lower entry prices, higher supply levels, speedier rewards)
  • As observed in financial markets, existing trends reinforced themselves (winners rising further, with no or very limited corrections and consensus chasing the same momentum trades)
  • A significant number of galleries, are still ailing from the lock down and furloughs, with uncertainty relative to potential bankruptcies in the sector and very little data accessible in regards to their sales
 
Thus it make sense to take a step back and reflect on the prevailing fundamentals of the current context.
It is always hazardous to draw predictions from a limited and incomplete set of data. Furthermore,  one should avoid the trap of projecting a fad or short-lived consumer behavior into a long-term tendency. In particular in a period of major socioeconomic shifts.

                             

Prevailing Fundamentals
 
If you reassess current fundamental facts and current conditions, they boil down to a few basic observations:   
  • Liquidity is still exceptionally high
  • Political uncertainties have increased
  • The disconnect between financial market performance and the real economy persist
  • Safe haven assets have become expensive, but simultaneously essential for asset allocations purposes, notably as a hedge against monetary debasement, potential inflation and unexpected financial disruptions
  • A negative real rate environment is exacerbating the search for yield

Winners and Laggers

In that context, blue-chip works of art and artworks that demonstrate attributes of scarcity and superior quality, will continue to attract inflows of liquidity, as they will be viewed as a possible hedge against inflation and monetary debasement. Simultaneously, the speculative instincts, sharpened by a search for yield (and ideally rapid profits), should continue to support the bubbly end of the market in the short-term.
 
In this scenario, the laggers will be tier-two quality works of art and to a certain extend the mid-market, where neither the prospect of a sharp price appreciation, not the safe haven attributes to lure collectors to engage markedly. Why should you rush to buy an artwork, when you know that no near term catalyst can truly impact its value positively (unless it's a 'coup de coeur')?
 

As these second tier/ mid-market works represent the majority of the art supply, it will become essential, now more than ever, to adopt a very selective approach in any acquisition process, in terms of aesthetics, historical significance and market momentum.
                                                                         
◊  Auction houses' resilience during the pandemic

Considering the disruptions affecting the art market, with live auction suspended for most of the year, and a highly uncertain economic context, the total decrease observed in sales (auction and private sales combined) has been less steep than initially anticipated:




                                                                


Christie's
-The impressive increase in private sales translates in 3 works being sold over $100 million and 12 above $25 million behind the curtain.
-Online-only sales were up 262% in 2020 (USD 311 million)

Sotheby's
-Over 40% of bidders in online auctions were new to Sotheby's
-80% of submitted bid were placed online
-15% of total auction sales came from online auctions

  
◊  Predictions for 2021

  • Negative real interest rates will bolster the attractiveness of art

Real interest rates have pushed into negative territory and consensus expects them to stay there, especially as central banks might be incentivized to keep inflation rates above interest rates in the medium-term.
This has two implications for the art market: liquidity has fewer alternatives in terms of interest-bearing assets and art will appear more attractive as an inflation hedge. High-quality works will most likely be the main targets of this trend.

  • Asian buyers are expected to overtake American buyers for the first time

Christie's announced that 34% of global spend in auction sales went to buyers in Asia, well-balanced by Americas (33%) and EMEA (33%).
Sotheby’s release also mentioned that Asian collectors accounted for 30 percent of the sales. Buyers from the region won nine of the top 20 lots and bid on half of them.
Christie’s CEO Cerutti has indicated lately in a press report that he anticipates that the  proportion of buyers  coming from Asia will be superior to the number of buyers from America in 2021.

  • Half of auctions will be online for 2021
Christie's CEO mentioned in a press report that almost half of the auctions will be held online in 2021.
  •  Collecting tastes will continue to evolve
The number of younger collectors, under the age of 40, has doubled according to Sotheby's. Naturally they have their own narratives and their taste will shape the future trends over the 2020's.


WEBINAR:  HOW THE SHAPE-SHIFTING ART MARKET IS GENERATING NEW OPPORTUNITIES FOR ART LENDING

The team will discuss the mechanisms of art lending, the trend towards the financialization of collections and how the evolution of the art market in 2020 has generated increased opportunities for art lenders.

It will take place on THURSDAY JANUARY 21th at 4pm CET. For those interested to attend this webinar, please register here:

https://mailchi.mp/c9c358e91913/insights-on-the-current-state-of-the-art-market-and-art-financing

More to follow in 2 weeks !

The LINK Management team 

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LINK MANAGEMENT

ART WEALTH MANAGEMENT AND FINANCING


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