Ultra-rich art spending will be booming, geopolitical concerns are looming, and wealth managers are making room for art-related services. These are just a few of the insights and forecasts published in the 2017 edition of the Deloitte and ArtTactic Art & Finance Report.
First published in 2011 and released this year as an anniversary fifth edition, the Art & Finance Report is co-authored by the professional services network Deloitte Luxembourg and the market research firm ArtTactic. The title of the report is representative of the participants surveyed: 69 private banks, 155 art professionals, and 107 art collectors. Also apparent is the difference of opinion according to geographical regions, as professionals from around the world provided insights into the intersection of the art and finance industries. For those who want to read all 272 pages, the full report can be found here; for everyone else, Artrepreneur has focused on five key findings in the report.
Auction sales slump bids farewell with early year surge
The 2017 global art market opened optimistically enough for total auction sales, which were up 18 percent in the first six months of the year compared to the same period last year. Such a boost in auction sales at Sotheby’s, Christie’s, and Phillips was welcome news, especially on the heels of a global art market slowdown that started in the second half of 2015. Around that period, auction sales were down 5.9 percent, and they plummeted to a further 35.7 percent decrease in 2016. According to the Deloitte and ArtTactic report, the increase in global auction sales can be attributed to increases in two types of sales in the same time period: Chinese and Asian art and impressionist, modern, and contemporary art. In addition to these contributing factors, growth in London sales (up 31 percent) and New York sales (up 29 percent) were also responsible for the global auction advances.
Geopolitical problems produce precarious predictions for next year
But despite this significant auction sales rebound at the start of 2017, the outlook for 2018 remains cautious for the overall art market. Some of this caution could be due to the world’s many political and economic uncertainties which have, ironically, created one certainty: They are ranked as the biggest risk to the development of the 2018 global art market, according to a June 2017 survey by ArtTactic. Such concerns span the geopolitical gamut as they span the globe, ranging from political instability in the U.S. and the fear of terrorism to conflicts in the Middle East and China’s debt bubble.
However, uncertainty doesn’t spell certain doom, as in the case of Brexit. Though a negative impact is anticipated for the UK contemporary art market in 2018, London auction sales saw a $404 million increase in the first half of this year, compared to the same period in 2016. Such success has been linked to the decline in sterling and the resulting lower exchange rate, which likely motivated buyers from outside Europe to take advantage of this Brexit benefit.
Wealth management expands to more art-related services for the ultra-wealthy
Along with taking stock of the stock market, wealth managers are looking more to art as part of a more comprehensive asset management strategy. More wealth managers—88 percent in 2017 compared to 78 percent in 2016—say art and collectibles should be a wealth management solution, and they’re offering art-related services to clients who are increasingly asking for help with art-related issues. Though these so-called “passion-based” investments are often linked to clients’ hobbies, their collected value is no mere whim: art and collectibles comprise an estimated $1.62 trillion of ultra-high net worth individual (UHNWI) wealth, estimated to increase to $2.7 trillion by 2026. But despite such astronomical financial figures, it isn’t simply the love of money that drives an art collection: 86 percent of art professionals say their clients buy art and collectibles for emotional reasons in addition to the investment value.
Even though investment value may not be the top priority for art collectors, the financial benefits can’t be overlooked, especially when it comes to art-secured lending. This niche-credit service targeted towards high net worth collectors helps them access the equity value of their artwork without having to sell them. With 67 percent of wealth managers reporting that they offer such services, the U.S. art-secured lending market has seen significant growth between 2016 and 2017, growing 13.3 percent and reaching an estimated $17-20 billion. However, the U.S.’s lead in such lending is mostly due to the favorable legal environment created by the Uniform Commercial Code (UCC) and tax provisions. European banks and lenders, on the other hand, often have no option but to take physical possession of the art put up as collateral, though new developments are being made to avoid that and further boost the European art-secured lending industry.
High-tech solutions raise the bar for art market advances
As technology continues to evolve, so does the art market, particularly in the online sector. While global auction sales fell by 19 percent in 2016, that same year saw a 15 percent increase in online art market sales, which reached an estimated $3.75 billion and raised the online category to an 8.4 percent share of the overall art market. Traditional art businesses are responding with their own online growth: Sotheby’s 2016 online business increased 19 percent, while Christie’s online bidding and auctions jumped by 34 percent in the same year.
Today’s talk on the topic of technology is never complete without discussing social media, and its influence is evident in all areas of the art industry. Never before has social media been so prominent in the creation of art itself and its subsequent marketing; exhibits such as “Rain Room” at the Los Angeles County Museum of Art and “Infinity Mirrors” at the Broad Museum drew more than just art fans as selfie seekers flocked to museums in search of the perfect photo to share with online followers. But beyond all the likes and the retweets, social media allows artists to showcase their work directly to millions of potential buyers, serving as a low-cost distribution channel that targets the middle market.
For non-artists, such as wealth managers and financial services professionals, social media is equally beneficial in helping them be well informed on the contemporary art scene and in connecting with the art community, thus helping them develop deeper and more meaningful relationships with art collectors and clients.
Agreement on business practices meets disagreement in regulation
The online platform isn’t the only place where the art market is modernizing its ways—73 percent of wealth managers, 74 percent of art professionals, and 64 percent of art collectors said the art market’s business practices need to meet the standards of today’s developed marketplace. But while survey respondents agreed in business practices that are transparent and trustworthy, they disagreed on the best approach to establish such credibility; art professionals and collectors favor self-regulation while wealth managers prefer more government regulation.
Still, no matter the difference in regulatory approaches, the issues identified as threats to the art market were priorities across the board. Price manipulation and other anti-competitive behaviors were identified as major factors that could damage the reputation of the global art market, since they have the potential to undermine price confidence and credibility. Undisclosed conflicts of interest is another problematic issue, especially since the art market is so strongly tied to a commission-based revenue model. Other reputation-threatening issues included the lack of market transparency, insider dealing, money laundering, and the lack of standardized professional qualifications in the art market.
What’s your take on the state of the art market? Let us know in the comments!