Art Market to Expand if Passion for Living Artists, Digital Works Continues

“We’re at a transition point,” says
Suzanne Gyorgy,
global head of art 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 few collectors once openly had.  

“They collected art because they became passionate collectors and connoisseurs and did the research and due diligence,” Gyorgy says. 

An explanation for the shift can be found in the skyrocketing prices for a range of artworks. In the 18 months ending in June 2021, prices across most categories of public art auction sales were up 28.2% above December 2019 levels, Citi reported citing the latest data available from Masterworks.io’s All Art Index. 

In the same time 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, generally doesn’t perform in sync with any other asset class, which can make it an appealing addition to a portfolio. 

Citi looks at art from the perspective of a collector, and doesn’t include it as a category in asset allocation models for clients. But in the report, the bank’s investment strategists said investors could reduce risks in their investment portfolios if they have broad exposure to the art market or to a category within it, such as contemporary art. 

Art also has proven its value as a way to preserve wealth “because it’s been so stable,” Gyorgy says. That’s particularly true for collectors focused on only the very best art. But a diversified collection can also produce stable results, she says. 

The biggest art story of 2021 was the rise of NFTs, one-of-a-kind digital assets linked to works of art that most often are created digitally. These tokens disrupted the art market by creating “a new way of consuming art and collectibles” that tapped into a “younger, digitally native audience,”
Anders Petterson,
founder and managing director of ArtTactic, wrote in a chapter of the report. 

NFTs are easily traded without the use of an intermediary—giving them a value outside of their aesthetic worth—and the tokens provide a way for digital artists to profit, Petterson said. 

They have also quickly and thoroughly been integrated into the traditional art world of auction houses and dealers, who had been searching, prior to the pandemic, for a way to draw younger collectors to the art market. NFTs and the acceleration of online art tools such as virtual galleries turned the tide. 

“It turned out that Covid and going virtual made the art market appealing to a lot of people who were used to being online,” Gyorgy says. 

Auction houses gravitated quickly to NFTs as these sales exposed them instantly to new bidders, creating a new group of clients who could eventually branch out into buying physical works of art, Gyorgy says.

“It starts to trigger this desire to collect,” she says.

Another trend that began in 2020 and accelerated since was an auction-house focus on living artists such as
Amy Sherald
or
Jadé Fadojutimi.
Until recently, works by current artists were largely only sold through galleries and other private dealers.

The auction houses have even carved out new sales categories to highlight “ultra-contemporary” work, such as Sotheby’s “The Now” sale, and Christie’s 21st-century category. They’ve also raised the profile of existing sales featuring young, emerging artists,
Betsy Bickar,
an art advisor at Citi, wrote in the report. Phillips, which has long featured these artists, saw sales climb in 2021, she said. 

Relationships in the art world are shifting as a result. Auction houses, for instance, are planning exhibitions with galleries and larger, established dealers such as
David Zwirner
and
Jeffrey Dietsch
are reaching a new base of collectors through partnerships with smaller, emerging galleries, Bickar said. 

Much of money flowing into the ultra-contemporary sector is being driven by collectors from across the world. “A lot of the emerging wealth is buying the emerging contemporary,” Gyorgy says. 

As with any emerging market, time will tell whether some of the artists making headlines today will have staying power. “If you are buying purely for investment, you’ll have some wins, but you’re going to have some losses,” she says.

One 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. Also, volatile markets could potentially reduce the amount of disposable income wealthier collectors have to buy art.

“In recent decades, the art market has also benefited from growth in the world’s ultra-wealthy population. A larger number of multi-millionaires and billionaires represent greater potential demand for expensive works of art,” the report said. “Any reversal of this trend—perhaps resulting from declines in investment portfolio wealth—would likely be detrimental to art.”