The Future of the Art Market

August 27, 2014

Reports on the booming art market have been multiplying since the beginning of the year, but summer brought a break in both activity and sales. We have had the breakthrough Christie’s semiannual report, high selling authors such as Koons, Banksy or Damien Hirst, still very much desired, galleries preparing new seasons in what appears to be a very lively exchange. Big auction houses as well as galleries use the quiet period to rethink their steps and continue the prosperous period soon, but some issues have come along that have made everyone a little tense, such as the major drop of Sotheby’s stock price, from $53 in January, to about $41 recorded last Friday. This significant drop has brought up new concerns in what seemed to be the art trade paradise, and everyone is asking themselves - where is the market going to go next?

Art Market
Evening Sale 2011

Is the Bubble Deflating?

According to Fabian Bocart, the director of Tutela Capital’s quantitative research department, the general idea between financial analysts is that the valuations of art businesses are peaking at the moment, while the valuations are based on ‘expected volumes at auction’. He added that it appears very expensive objects have very little impact overall. This would easily seem that there is no way but down from this point, but is it really so? Sotheby’s stock price is already recovering, but it’s important to mention that auction houses, although they may be the biggest, art not the only players in the market.

Art Market
Sotheby's Stock Price

Market is Cyclical

Because there are not as many buyers today as there were in 2008, at the time of the preceding market thrive, the middle market was greatly diminished, appearing to not exist anymore. Experts generally agree that middle market needs to be nourished, and that the market needs a fresh push. Big fish eat the small in every market, translating into the arts when big galleries take the most important or promising artists from smaller businesses and often cause their demise. It’s the rule of power today, but smaller galleries need to find a way to recover, by having a space opened for new artists. This is one of the ways to revive the middle market. Also, private galleries are not in the same jeopardy as the auction houses, as they charge about 50%, while the stock price is inapplicable and therefore, irrelevant.

Art Market
Sotheby's peaking when there's a bubble

Flippers are Not Leaving

Lastly, there is a number of new players called ‘flippers’, the group feared by most and despised by many important figures in the field. Flippers are speculative buyers, who keep an eye on good prospects, acquire them and then flip them in a relatively short period of time, from 2 to 5 years. The danger of their activity lies in the fact they often flim emerging art, which is not substantiated in the art world, but rather a hit of the moment. Their actions provoke regular auctioneers, and gallerists even more, because of the risk that the artist they are promoting can crash as easily as his work soared, while the pressure of having to keep the high and growing price stays. In the end, it’s good for everybody, but the environment is kept alive artificially, making it hard to predict the outcome. What if the bubble bursts?

Art Market
Jean Michel Basquiat's Warrior made £5,585,250 and was the top lot at Sotheby's evening contemporary art sale in London. It was resold 3 times between 2005 - 2012.

Bubble Or Not - Nothing’s Bursting Just Yet

Bubble will probably stay alive and well, as many depend on it. While the future of the art market will introduce new sales channels, such as online ventures, but indications are that the general image of the industry will remain largely the same as now. The high-end items will probably continue to be sold through big auction houses, or via major galleries at the Art Fairs, where Gagosian, or  David Zwirner write the rulebook; while the rest of the market could move online (luring the buyers offering purchase without premium, for example), but never entirely. Numerous collectors still prefer to see and touch the art before they acquire, so the online art market is likely to be limited by the inability to offer the live experience. However, when combined with the auction room, which Sotheby’s and eBay are doing, it may look more appealing to even traditional collectors.

Last and crucial remark - Asian market is flourishing. China is actually likely to become the new mecca of the global art market, not solely because of the numerous artists, but because of the increasing economic growth and fast accumulation of capital. We are yet to see what Asia has in store for the old continent's art trade, but it's good to know that in the art market there aren't any 100% solid guarantees.

Art Market
Sotheby's Auction Room