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The Art Market Bubble

 4 min read / 

The art markets have enjoyed an ever growing celebrity throughout 2015. Propelled to stratospheric levels of interest by unprecedented prices, art markets have made headlines globally. Indeed leading auction houses; Sotheby’s and Christie’s have witnessed record breaking sales. Sotheby’s £186.44m auction marks the highest sales reached at a London auction whilst Christie’s sale of Picasso’s ‘Les femmes d’Alger (Version O)’ for £116m established it as the world’s most expensive painting at $37m more than the previous high. It is, therefore, unsurprising that Jussi Pylkkanen, Christie’s president, declared art markets to be entering ‘new territory’ the likes of which have never previously been witnessed.

Unchartered territory

Whilst the art market has boomed across the spectrum, with the global market 20 times as large as it was in 1990, growth has been particularly dramatic within the ‘top works’ sector. This sector, including pieces such as Picasso’s ‘Les femmes d’Alger (Version O)’, accounts for a sizeable 48 percent of the value of the auction market despite representing only 0.5 percent of transactions.

Growth in such a space has been driven in part by an increasing number of global rich who are putting their money into art as an investment, but also as a status symbol. Buyers are representative of an increasing geographical diversity in art markets: auction houses report an increasing trend towards higher representation from Russia, Asia and the Middle East, marking a move away from the traditional collectors of Europe and the U.S. It is now commonplace to receive bids from as many as 40 different countries during any given sale.

This shift marks the transition of art markets from a regionally based and geographically limited market to a truly transnational phenomenon made possible in part by the introduction of technology. Technology has taken art auctions into the digital age and allowed for greatly increased ease with which to take part in remote bidding.

Immune to the bubble?

Commentators cite the increasingly global market as a sign that the art market has only just begun to rise, whilst a seemingly limitless potential for expansion appears to signal an ‘immunity to the bubble’. It seems likely that this view falls short on at least two key points.

Firstly, it fails to consider the depth to which the market is established within expanding areas. The notion of depth raises an important question as to whether buyers from Asia and other growing areas would be capable of making up the shortfall; should European or American markets weaken. Anders Petterson of ArtTactic points to his research and suggests that despite the hype surrounding buyers beyond Europe and the U.S they ‘could never take up the slack’.

Secondly, the idea of the art market as limitless excludes an acknowledgement of existing constraints. Although the market is increasingly diversified with an ever growing number of artists and galleries, this growth is occurring in areas beyond the key ‘top works’ sector that is largely responsible for surge in the market.

As an investment category ‘top works’ is unique in its limited inclusion of artists and its lack of diversity: over the past 20 years sales have been largely limited to a select group of artists capable of bringing in multi million pound sums. This lack of diversification signals a market that is less robust to external shocks than more traditional investments.

Looking to the future

Despite the resounding growth within art markets and their increasing prominence as an asset category in their own right, it seems likely that investors ought to pursue investment in this sector with caution. Whilst some have argued that the market is unlikely to be impacted by a collapse of the ‘bubble’ this appears to be a somewhat short-sighted view driven by the present strength of the art market in emerging markets. In reality it is highly likely that the increasingly global nature of the market is not yet established enough to weather a weakening of the market in traditional art centres should this happen.

2 Comments

2 Comments

  1. Kmentemt

    June 4, 2015 at 7:57 AM

    I agree that a shortfall might be one reason, but I strongly believe if there is a big auction without a new record, that the buyers will become nervous and the bubble will start to burst. Beide that as long as the (art) market is flooded with cheap money by the US and EU central bank like nowadays, the price has lost its function as a signal, as an information.

  2. Kmentemt

    June 4, 2015 at 9:22 AM

    Please read this too: Signs of Slower Growth in Top-End Art Sales
    http://www.nytimes.com/2015/05/29/arts/design/signs-of-slower-growth-in-top-end-art-sales.html

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