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Art Market Fluctuations: What Does the Past Tell Us? The global art market has experienced numerous cycles of booms and downturns, but history shows that the market grows and expandsover time. Periodically, there is an increase in sales turnover, and new price records are set at auctions. Historical patterns provide valuable information for predicting likely future trendsin the art market, makingit essential to analyze them. To this end, we will explore the periods of prosperity, decline, and recovery in the art market within the context of three historical economic crises. The Great Economic Crisis (The Great Depression of 1929–1930) The Great Depression in the early 20th century marked the end of the post-war boom. It led to a restructuring of the art market, significantly influencing its future formation, the behaviour of its participants, and the emergence of primary art market trends. From 1919 to 1929, culture thrived, with art dealers reigning supreme and a prevailing belief that owning works of art symbolized prestige – buying art became fashionable. However, around 1929–30, the Great Depression struck, negatively impacting the global economy. Simultaneously, it was a pivotal moment in shaping the international art market. Governments around the world responded to the crisis differently: while the United States subsidized artists' activities through President Roosevelt's "Public Works of Art" project and Poland underwent a restructuring of its art market to save it, censorship was imposed on artists in Great Britain, and the number of patrons decreased. Disillusioned artists turned to emerging commercial fields such as photography, design, and advertising to make a more stable living. This imbalance in the market highlighted several key trends: smaller formats and works by young talents, which were, therefore, more affordable, remained in demand, as did the works of established artists who had carved out their place in the market. The British newspaper "Daily Mirror" wrote that "the crisis did not affect fashionable artists" during the recession. Indeed, impressive sales transactions occurred worldwide during the downturn, including the sale of Andrew Mellon's classical painting collection by a consortium of art dealers from London, New York, and Berlin in 1931. This collection became the foundation for the formation of the National Gallery of Art in Washington, D.C. A rapid post-crisis growth was characterized by the emergence of numerous new art museums, and the reinvigoration of the art market also led to an increasein the art sales index in relation to gold. This was a particularly positive sign, considering that gold is seen as a safe- haven asset during times of crisis, as its value tends to rise while the value of most other financial market instruments declines (Solimano, 2019). Black Monday 1987 Crisis The stock market crash of 1987 in the United States was a pivotal event that further enhanced the investment appeal and growing significance of global works of art, attracting new market participants. Since the 1970s, two art capitals emerged: London and New York. In these metropolises, the influence of the secondary market continued to grow, and auction houses gained more critical positions. For example, London's Sotheby's expanded and opened branches in America, Australia, continental Europe, and Asia. The Art Sales Index, established in 1968, made auction results publicly accessible. However, the negative impact of the 1987 stock market crash on the art market was short-lived. In the same year, the highest-ever increase in art prices was recorded in the United States, which continued until 1990 (based on Artprice data: Artprice is a leading art market database that has registered over 30 million art market indices, econometric analyses and auction sales records since 1962). This partly resulted in market changes: the strengthening of the Japanese yen (following the signing of the international "Plaza Accord" in 1985) became evident, and the secondary art market gained more stability due to the removal of tax incentives in the United States for those who donate works of art to museums. As a result, art owners began openly selling their art in the art market. The circulation of works of art continued worldwide, and contemporary works of art gained increasing significance as an investment option. Numerous art galleries emerged, and large institutions like banks and businesses with significant purchasing power entered the art market.
2009 Crisis and the Art Market The first major crisis of the 21st century left an indelible mark on global economic history. However, the art market quickly recovered from the blow and revealed its potential and unique characteristics compared to other international markets. From 1998 to 2008, the value and trading volumes of works of art in the global art market steadily and reliably increased. However, in the face of the crisis, the turnover of art pieces worldwide decreased significantly (from $62 billion in 2008 to $39 billion in 2009), and the Art price AMCI dropped to a record low of -20, indicating the concerns of art market participants. The Art Market Confidence Index, compiled by Art price, is considered one of the most critical indicators reflecting the sentiment of the art market. A result above 0 indicates optimistic beliefs, while below 0 indicates pessimistic feelings. During this period, once again, it became evident that the value of classical works of art decreased during economic crises, and there was growing popularity of more affordable works by artists. The Artprice 2009 report indicated increased demand for classical and modernist paintings, with sales revenues at Christie's auctionsgrowing by 6.8% to 12.5%in the classical category and 44% to 48% in the type of modern art as a percentage of total auction house revenues. In the first years after the crisis, the art market activity soared. Statistical data from "The Art Basel and UBS Global Art Market 2019" reports show that from 2009 (Q4) to 2011 (Q3), the value of art sales worldwide increased by as much as 77%. In comparison, it took the S&P 500 index (considered one of the most significant indicators of the U.S. stock market) two additional years, until 2013, to reach its pre-crisis level. Furthermore, according to research conclusions by Luxembourg scientists, afterthe crisis, the growth in the value of art sales outperformed the S&P 500 index and indicators of the real estate market. Based on these statistics, it can be stated that the art market's recovery was exceptionally rapid in the context of the global economy. The post-crisis recovery primarily affected significant auction houses and extensive galleries, leading to increased investments in works of art. According to Artprice, the annual profit of galleries with yearly turnovers of around $50 million increased on average by 10%. Family offices, which provide integrated wealth management and administration services to high- income families, globally began to resemble the activities of risk or private funds and started increasingly direct investments in works of art in 2009, taking advantage of the circumstances after the economiccrisis. This significantly contributed to the growth in the numberof art sales worldwide. According to experts, both the European and American art markets received a positive boost from the growinginfluence of the Chinese art market duringthe challenging period.This could
be seen as the benefit brought by global diversification. Chinese art market sales reached unprecedented heights, making it the second-largest art turnover in the world after the United States in 2010.In numerical terms,the turnover of the Chineseart market in 2010 amountedto $8.2 billion, accounting for 23% of all global art object sales. Several reasons possibly contributed to this grand growth of the Chinese art market: a) an increasing number of Chinese billionaires who wanted to invest, b) limited investment options imposed by the state-made works of art and collectable assets an attractive investment opportunity, c) the Chinese government prioritized culture by creatingnew jobs in this sectorand promoting Chineseculture worldwide to gain more influence (soft power) in the international market. The stability of the Eastern art market fostered optimistic sentiments worldwide and signalled the end of the crisis period. In all the cases examined, the art market has been characterized by the following trends: · During times of crisis, classical artists' works maintain a stable value. · During recessions and periods of stagnation, young artists' smaller and more affordable works gain popularity. · After a crisis, the art market tends to recover faster than other financial instruments or indices. · During periods of recovery, the art market experiences innovations and the involvement of new participants, directly or indirectly affecting the art market (e.g., a) the establishment of museums in the 1930s, b) the increased importance of the secondary market in the 1980s, leading to the expansion of auction houses and the growth of galleries, and c) the new strategy of family offices investing in works of art and the strengthening influence of external factors, such as the rise of the Chinese art market). Current Situation Today, Artprice AMCI records overallinvestor uncertainty, but lately, positivesigns are observed, correlating with historical trends in the art market: 1. Increased interest in art as an investment: In recent years,art has grown to be recognized as a viable investment asset class. Traditional investors, as well as new collectors, are diversifying their portfolios by allocating funds to art. Works of art are an alternative investment that can provide potential financial returns while offering aesthetic and cultural value. 2. A new format of art market institutions is emerging. As digitization accelerates, numerous physical and cultural institutions are moving to online spaces. Major auction houses,art fairs, and other art platforms are being presented virtually, making them more accessible to investors from different countries and the younger generation. Phillips auction house announced during a press conference that their online auction on March 4, 2020, attracted a record number of participants from 47 countries. This shift, combined with the changes brought about by COVID-19, leads to further digitization of the art market. 3. Records in prices for new forms of sales. The registration of the first online transaction records and successful results of virtual auctions. One such example is the Sotheby's Contemporary Art | Hong Kong online auction held in May 2020,which generated $1.3 million in sales and significantly exceeded sales forecasts ($750,000 estimate) and the
previous year's results(2019). Most of the lots sold were priced below$5,000, indicating the continued popularity of more affordable works.
4. New market participants. Start-ups that were previously alternative art market platforms, such as companies offering collective investment or guaranteed price transactions, are gaining strength. The U.S.-based platform "Masterworks," which enables collective investment in blue-chip works of art, is witnessing increasing engagement from new users and sharing promising statistical data. In general, online art platforms have gained significant traction, enabling collectors and investors to browse, buy, and sell works of art from the comfort of their homes. These platforms have expanded access to a global audience, attracting international buyers and increasing market liquidity. Another new but already leading company – "artXchange Global", specializes in advising and facilitating investments in both emerging and established artists, focusing on works of art with high growth potential in the European and Asian regions. These innovative companies aim to revolutionize the approach to alternative art investments, offering investors the opportunity for solid potential returns and profitability.
5. Rise of Non-Fungible Tokens (NFTs): Non-Fungible Tokens have made a significant impact on the art market, especially in the realm of digital art. NFTs use blockchain technology to establish ownership and provenance of digital works of art. This innovation has opened up new opportunities for artists and collectors, providing a secure and transparent way to buy, sell, and trade digital art. On the other hand, there are lots of scam cases, and collectors should be meticulous.
6. Focus on diversity and inclusion: There is a growing emphasis on diversity and inclusion within the art market. Artists from underrepresented backgrounds and marginalized communities are receiving increased recognition and support. Art institutions, galleries, and collectors actively seek out and promote diverse voices, contributing to a more inclusive and vibrant art ecosystem.
7. Sustainable and impact investing: Environmental, social, and governance (ESG) factors are gaining prominence in the art market. Collectors and investors are showing a greater interest in works of art that align with their values, such as supporting environmentally sustainable practices or works of art with a social impact. This trend reflects a broader movement towards responsible and conscious investing.
8. Art market data and analytics: The availability of comprehensive data and advanced analytics tools have revolutionized the art market. Market participants can now access real-time information on art prices, sales trends, and artist performance, aiding in making informed investment decisions. Data-driven insights are becoming increasingly crucial in understanding market dynamics and identifying investment opportunities.
9. Continued demand for established artists: While the art market celebrates emerging artists and new voices, established artists with proven track records continue to command significant attention and higher prices. Works by renowned artists, particularly those from based art movements or historical periods, often serve as a haven for investors during times of economic uncertainty.
It's important to note that the art market is inherently subjective and influenced by various external factors, making it prone to fluctuations and unpredictability. Therefore, conducting thorough research, seeking expert advice, and staying informed about market trends is essential for investors navigating the art market.'
We would like to thank Ornela Ramasauskaite, CEO and Founder artXchange Global for this informative article.
Sincerely,
Roger Blikkberget
CEO and Founder Viladomat Fine Art.
