The art market has rapidly transformed to attract and adapt to younger, more diverse and increasingly tech-savvy collectors since the onset of the pandemic in 2020.
If current trends of purchasing lifestyle, various artists, and purchasing through digital channels, including marketplaces for non-fungible tokens, or NFTs, continue, Citi expects the market to art is growing and changing “faster and faster” this year, according to a 2021 Global Art Market report published on Wednesday.
“We are at a transition point,” says Suzanne Gyorgy, global head of arts advisory and finance at Citi Private Bank.
This transition is fueled, in part, by the growing treatment of art as an asset class similar to stocks and bonds – an approach to art that few collectors once had openly.
“They collected art because they became avid collectors and connoisseurs and did the research and the due diligence,” says Gyorgy.
An explanation for this change can be found in the skyrocketing prices of a range of artworks. In the 18 months ending June 2021, prices across most public art auction categories rose 28.2% from December 2019 levels, Citi reported citing the latest available data from Masterworks.io’s All Art Index.
During the same period, developed market stocks returned 31.4%, emerging market stocks returned 28.4% and investment grade bonds returned 3.1%, according to the report. Art, however, typically doesn’t work in sync with another asset class, which can make it an attractive addition to a portfolio.
Citi views art from a collector’s perspective and does not include it as a category in asset allocation models for clients. But in the report, the bank’s investment strategists said investors could reduce risk in their investment portfolios if they had broad exposure to the art market or a category within it, such as contemporary art.
Art has also proven its value as a means of preserving wealth “because it has been so stable,” Gyorgy says. This is especially true for collectors who focus only on the best in art. But a diverse collection can also produce stable results, she says.
The biggest art story of 2021 has been the rise of NFTs, unique digital assets tied to works of art that are most often created digitally. These tokens disrupted the art market by creating “a new way to consume art and collectibles” that tapped into a “younger, digitally native audience,” wrote Anders Petterson, founder and CEO of ArtTactic, in a chapter of the report.
NFTs are easily traded without the use of an intermediary, giving them value outside of their aesthetic value, and the tokens offer digital artists a way to profit from them, Petterson said.
They were also quickly and completely integrated into the traditional art world of auction houses and dealers, which before the pandemic were looking for a way to attract young collectors to the art market. NFTs and the acceleration of online art tools such as virtual galleries have turned the tide.
“Covid and the shift to virtualization have turned out to have made the art market attractive to many people who are used to being online,” says Gyorgy.
Auction houses quickly turned to NFTs because these sales instantly exposed them to new bidders, creating a new group of customers who could eventually branch out into buying physical artwork, explains Gyorgy.
“It starts to trigger this desire to collect,” she says.
Another trend that started in 2020 and has since accelerated was an auction house focused on living artists such as Amy Sherald or Jadé Fadojutimi. Until recently, works by current artists were largely sold only through galleries and other private dealers.
Auction houses have even created new sale categories to showcase “ultra-contemporary” works, such as Sotheby’s “The Now” sale and Christie’s 21st Century category. They also raised the profile of existing sales featuring young, up-and-coming artists, wrote Betsy Bickar, art advisor at Citi, in the report. Phillips, which has long featured such artists, saw sales surge in 2021, she said.
Relationships in the art world evolve accordingly. Auction houses, for example, are planning exhibitions with galleries, and large, established dealers such as David Zwirner and Jeffrey Dietsch are reaching a new collector base through partnerships with smaller, emerging galleries, Bickar said.
Much of the money flowing into the ultra-contemporary sector is driven by collectors around the world. “Much of the emerging wealth buys the emerging contemporary,” says Gyorgy.
As with any emerging market, time will tell if some of today’s headline-grabbing artists will stick around. “If you’re buying purely for investment purposes, you’ll get gains, but you’ll suffer losses,” she says.
A potential drag on the market in the coming year could be a rise in global interest rates, which will make it more expensive to take out a loan against an art collection. Additionally, market volatility could potentially reduce the amount of wealthier collectors have available income to purchase art.
“Over the past few decades, the art market has also benefited from the growth of the world’s ultra-rich population. A greater number of multi-millionaires and billionaires represents a greater potential demand for expensive works of art,” the report states. “Any reversal of this trend – resulting perhaps from a decline in the wealth of the investment portfolio – would likely be detrimental to art.”