Understanding the art market can be challenging, not least because of its large size — a projected $75 billion this year, according to Art+Culture, Inc., an art research organization — and diverse offerings. Fortunately, technology can smooth the way to finding works of art that appeal to the heart and offer tremendous value.
To get a sense of some of the challenges of valuing art, consider the following. On May 16, 2000, the NASDAQ closed at 3717. That evening, at the renowned auction house Christie’s, a successful sale of contemporary art generated $15 million in sales, according to Christie’s and Art+Culture, Inc., with 15 lots setting auction records for artists including Sigmar Polke, Eva Hesse and others. Woman in Tub, a sculpture by Jeff Koons, was the highlight, selling for close to $1.7 million, just shy of the record $1.8 million paid the previous November for another of the artist’s works, the famed Pink Panther.
Fast forward to 2011. The NASDAQ had risen by only about 20%. Koons’s Pink Panther, meanwhile, came to market again and sold for $16.5 million — a whopping 870% price increase, suggesting that any connection between stock market and art market valuations is tenuous at best.
Moreover, art is a product borne from artistic inspiration; it has no intrinsic value and produces no cash flow. While there’s a significant supply of art, traditional rules of supply and demand apply to only a tiny portion of available inventory. And who makes the decision on what is sold and for how much? Mainly curators, dealers, art advisors and museums.
Segments in the spotlight
Over the past decade the art market has thrived, increasing in value threefold, from $24 billion in 2004 to a projected $75 billion in 2014, according to Art+Culture, Inc.
Price advances have been concentrated in terms of both period and medium. Post-war and Contemporary segments enjoyed by far the strongest growth. Paintings outperformed works on paper, drawings and sculpture.
In terms of period trends, sales of Old Masters have been sluggish. Rising interest in Modern, Post-war and Contemporary art has contributed to this shift, as has diminished availability of important works.
The allure of Post-war and Contemporary art has seemingly proved irresistible for new and seasoned collectors alike. Christie’s
generated nearly $800 million at a single May auction, according to estimates by Art+Culture, Inc., with works by Contemporary artists such as Barnett Newman, Andy Warhol, Francis Bacon and Mark Rothko selling for more than $50 million each.
Drivers of growth
Solid gains in the art market are being driven by a number of factors, which could propel sales for the next five to ten years.
- Art fairs. Sales are rising due to a worldwide proliferation of art fairs, which are providing broader distribution.
- Wealth. Rising global wealth has helped propel the market. Moneyed collectors from China, Russia and South America, in particular, have been driving demand for established artists and creating new opportunities for indigenous talent.
- Technology. One increasingly significant factor driving today’s art market is the rise of online databases and marketplace platforms, which can enhance prices and the discovery of inventory while easing transaction complexity.
Of the major auction houses, Christie’s has invested most heavily in technology. The firm conducted nearly 50 online-only auctions in 2013, based on Art+Culture, Inc. estimates, generating roughly $20 million in sales. Despite their efforts, however, Christie’s trails the “born-on-the-web” auction house Auctionata in business momentum. (See “Internet Rising,” below.)
The meteoric rise in art prices has expanded the size of the arts ecosystem on all levels. It’s also created an opportunity for smart collectors who’ve done their research to identify both market segments and individual artists overlooked by the majority.
Within Post-war and Contemporary segments, a handful of artists — Jeff Koons, Andy Warhol, Mark Rothko and others — have experienced the sharpest increases.
Notably, the average sale price for the top five lots sold at Christie’s Contemporary auctions rose 837% between 2004 and 2014, according to estimates made this year by Art+Culture, Inc., while the price realized for all other lots increased only 398%. This concentration has created an opportunity to buy important works by artists not caught up in the frenzy of speculation.
Beyond Post-war and Contemporary art, other areas offer compelling value. These include works on paper and prints; artists working in emerging geographies; and emerging mediums. An Albrecht Dürer print for under $10,000? It’s still possible.
The year ahead
Major retrospectives often result in a critical and commercial reassessment of an artist’s work. Shortly after the San Francisco Museum of Modern Art mounted a retrospective of Richard Tuttle’s work in 2007, for example, the top price paid for his works at auction rose 80% and the transaction rate rose 100%, according to Art+Culture, Inc. The Frank Stella and Agnes Martin retrospectives are two potentially market-moving exhibitions we will watch in 2015.
Frank Stella at the Modern Art Museum of Fort Worth
Opening February 2015
The innovative painter Frank Stella is having a renaissance of sorts, and a major exhibition of his work will open at the Modern Art Museum of Fort Worth in February 2015. After that it will travel to the Whitney Museum of American Art in New York, where it will be featured as one of the inaugural exhibitions in that institution’s amazing new building.
Agnes Martin at Tate Modern
Opening June 2015
Next year the Tate Modern in London will mount the first major retrospective of Agnes Martin’s work since the U.S.-Canadian abstract master died in 2004. This major show is likely to spark renewed interest in Martin’s beautifully minimal grid canvasses, only one of which has appeared at auction since 2007. After London, this exhibition will then travel to the Guggenheim in New York and the Los Angeles County Museum of Art.
The art market is among the most vibrant and fascinating segments of the economy — one in which a host of changes are producing a groundswell of interest. Getting involved in the market can be an invaluable step, from both the standpoint of collecting an asset — where research and engagement with key influencers can produce important advantages for the collector — and from a purely aesthetic perspective.
Buy with your heart. In my view, this is the best strategy for long-term satisfaction; the “cash flow” from art is the pleasure you get every day from looking at it on your walls. At the same time, art is emerging as an increasingly viable asset.
In Part 2, in the next issue of Capital Acumen, Vroom will present a range of traditional and innovative approaches to help you participate in this exciting market.
Some of the featured participants are not employees of U.S. Trust. The opinions and conclusions expressed are not necessarily those of U.S. Trust or its personnel. Any of their discussions concerning investments should not be considered a solicitation or recommendation by U.S. Trust and may not be profitable.
Projections made may not come to pass due to market conditions and fluctuations.
Past performance is no guarantee of future results.
Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.