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A market divided

Top quality works are keeping the numbers up, but there are uncertain times ahead

Is contemporary art a safer bet than impressionism?

The crisis in the eurozone, the threat of reces­sion, rising unemployment and widespread political uncertainty painted a grim picture of the global economy at the end of 2011—and yet one sector was apparently defiant: the art market. As the economic gloom deepened through the autumn, there was widespread speculation that it, too, would inevitably follow other sectors downwards, and the autumn season’s fairs and auctions were watched carefully, and with more anxiety, than usual.

But as the results came in, it was clear that some sectors of the art market were almost miraculously walking on water. Sotheby’s 8 November sale in New York fetched extraordinary prices for a group of Clyfford Stills and for works by Gerhard Richter, and its total of $315.8m was its third highest for such a sale, with just $100,000 separating it from its second (the record is still held by Christie’s $384.6m sale in May 2007). The autumn fairs and many other auctions also turned in more than respectable results. Based on almost complete data for 2011, the French site Artprice reported that the year was the best ever for sales of art at auction: $10.7bn, compared with $9.5bn in 2010. This extraordinary result shows that the market was still growing last year, boosted by Chinese buyers.

Art has certainly benefited from being considered by some as a “tangible asset”. “Investors were disappointed in financial assets following the economic crisis and there is growing demand for ‘real assets’ that offer a long-term store of value,” says Randall Willette of Fine Art Wealth Management.

An illustration was the extraordinary results of the New York sales of Elizabeth Taylor’s jewels and memorabilia (total $156.7m) last month, which showed that there is still a massive amount of money available to be splurged on luxury goods—an area into which art is, rightly or wrongly, assimilated by many financial analysts.

The major questions, as we go into this year, are how resilient is the market, and can it continue to operate in an apparently parallel dimension?

First, and this cannot be repeated enough: the art market is not a single entity, but a succession of smaller markets. The chart (see p8) looks at impressionist, modern and contemporary art sold at auction since 2004, and shows the first slipping slightly while the other two are still rising. In other fields, however, the picture is not so rosy—recent sales of Old Masters, Russian art, Middle Eastern art, 19th-century painting and European sculpture have all seen high buy-in rates, while antiques, furniture in particular, are in the doldrums.

“Dealers in smaller markets are very panicky,” says art economist Clare McAndrew. She has been conducting wide-ranging interviews for her annual report on the market, published during the Maastricht fair (The European Fine Art Fair) every March. “But the high end is getting further away from the rest,” she says.

“The increase in the sheer amount of wealth is leading to a bifurcation towards ‘masterpieces’,” says Michael Plummer of Artvest. This leads to big prices being paid for top pieces even in otherwise weak sectors, one example being the $6.9m given for a Louis XVI lacquer commode in the Safra sale at Sotheby’s, New York in October.

The difference between today and the 2008-09 crisis is that the very rich have, overall, regained their fortunes and are spending again. “From 2009 to 2010, it was seen as unfashionable to flash your cash,” says McAndrew. “And at that time, UHNWIs [ultra-high-net-worth individuals, defined by Merrill Lynch-Capgemini as those with more than $30m in investable assets], were worried about banks going under, so they held off spending; today’s concerns about unemployment, say, are not their problem.”

And if they buy mainly in the contemporary art segment, it is because the art market is supply-driven: this is the only part that can continue to furnish stock, particularly as the very rich increasingly parade their wealth with private art spaces showing contemporary art.

It is also fashion-driven: today’s buyers, those with new wealth in particular, like the “branded” nature of contemporary art. Contemporary also has global reach, says Jeff Rabin of Artvest, but he cautions: “The greatest demand will be for fresh and correctly estimated property.”

The market is also highly dependent on confidence, something that was bolstered by the good results of the autumn sales. “There were surprisingly few guarantees in the November sales,” says Nick Maclean of the dealership Eykyn Maclean. “This shows that vendors were confident they would sell.” He says that in the impressionist and modern art field the auction results do not reveal the enormous amount of business transacted out of the public eye, through private dealers or through the auction houses’ private treaty departments. He is confident that there is enough supply in this field as well.

Nevertheless, there were signs of weakening as last year ended. The Russians have been slowing their buying, and while market leader Sotheby’s announced an increase of 16.6% on its sales (in New York and London) for 2011 over 2010, its strongest sales were at the beginning of last year.

Much was also made of a weakening of the Chinese market after Christie’s November sales in Hong Kong finally hit a snag. The firm sold $385m-worth of mainly Asian works of art, down 8% on its 2010 results. But, says Plummer: “The Chinese market is still strong, but has gone from overheated and reckless to more discerning, overall a good thing.” Meanwhile, the mainland auction houses continue to report blisteringly good results ($1.8bn for 2011, says Poly, a Chinese auction house).

“The art market is saved by two things: Europe, with its economic woes, is becoming less important; and the high end is so strong,” says McAndrew. And the market is also supported by countries such as Qatar (The Art Newspaper, July-August 2011, p1). Rabin sounds a warning: “We are in uncertain financial times and a scare in the financial markets and the continued fragility of the euro could change the landscape overnight,” he says.

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