By Michael McCullough
The Global Art Market in 2012
I suppose I started to notice it about eight years ago, when art fairs became the major source of income for most new galleries. Before that, collectors were content to visit individual galleries and attend shows based upon the strength of the artists and artwork on view; to a certain extent, they still are. The art fairs, however, offer a broad range of works in a single event which caters more to those who want to “find” works to buy than to those who want to be “shown” them. As a result, the major fairs have become somewhat of a status symbol for galleries to be taken “seriously” by this new breed of buyers, reminiscent of a trend several years ago where artists needed to have a presence on Google in order to sell their art. All of these are the organizing forces of a nascent global market in artwork, where information and public events provide fodder for market participants to adopt certain palates, follow major trends and purchase artwork.
TEFAF, the world’s leading art fair, opened last Friday and held a symposium to review the global art market during 2012. As TEFAF is the first major fair of the season, it’s quite clever of them to assume the wise-old-man role, and I suspect these market reviews will be a regular event at their fairs. In conjunction with this, they released a report, “TEFAF Art Market Report 2013” analyzing trends in the global art market last year. To no surprise, the worldwide art market contracted by 7% in 2012, as the Chinese market beat a retreat and shrank by almost a quarter.
Regrettably, the report suffers two major flaws from which it cannot recover completely. The first is a miscalculation of the estimated size of the private market, an understandable but fundamental error. The second is a failure to detail the volume of sales in each market sector, which is nothing short of lame.
For instance, they say the public market (auctions) makes up 48% of the total market and the private market (galleries) comprises 52%. To people who actually work in the market, these numbers are off wildly; most people estimate the private market to be at least twice as large as the public market. If my estimates are correct – and we know the global public market was at $27 billion last year- then the global private market was around $54 billion, thus the total global market should have been somewhere around $81 billion. To put this in perspective, if the art market were a separate economy then it would rank seventy-fifth, edging out Croatia and just behind Myanmar (which we should still call Burma).
To the second point, the “art market” is broadly defined as fine art, decorative art and antiques; this is a fair-enough definition, but the report fails to compile statistics on the volume of sales within each category. No reason is given for this omission, leaving the reader to wonder whether their statistics on the private market were so unreliable, or unobtainable, that a finger-in–the-air estimate of the total market size was the best they could do, with further examination relegated to the public market. In consequence of this, the report is only useful in its analysis of the trends within each sector of the market but not for comparisons among them.
One interesting observation is that 83% of the total public market by value is centered in three countries: the US, China and the UK. The US regained its leading position with 33% (up 4% on 2011), China dropped to 25% (down 5%), and the UK remained third with 23% (up 1%). What this really means is that the global public market is focused essentially in four cities: New York, Beijing, Hong Kong and London. This is equally true for the private market, as a brief review of the top galleries bears out.
We should also take note of the continuing strength of the high end of the market. In 2012, 66% of the fine art sales on the public market were of works priced over $250,000, even though these works made up only 2% of sales and 4% of total number of artists whose works sold at auction during the year. The top end of the private market, represented by gallery sales over $13 million, reported an average increase in turnover of 55%. The report mentions anecdotal evidence from gallerists that the market continues to be extremely selective, with some galleries reporting greater difficulty in selling low and medium priced works, while other galleries reported strong sales in higher priced works. Indeed, inquire of any artist or gallerist working in the middle market about its strength and you’ll likely get either a blank stare or a burst of profanity; the middle of the art market is sort of like being on the median of a major highway- everything is passing you by and you can’t seem to get off.
Perhaps feeling a need to explain these recent trends, the report suggests that investors are “minimizing risk by purchasing works by the best-known artists at the top end of the market.” This often-proposed explanation of the art market is, at best, incomplete: wealthy collectors choose art based upon their own tastes and preference with little concern for what market watchers think; investors are just following along for the ride. After all, the art market is still a collector’s market, although maybe just barely.
The report also focuses on China, which supposedly became the world’s principal market for art and antiques in 2011 with sales soaring to 30% of the global total. I recall having a good laugh over these statistics when I was in China last year, as sales figures from Chinese auctioneers were never considered by anyone in the market to be vaguely reliable. In fact, Beijing issued regulations last year to clean up an auction industry fraught with fakes, smuggling and non-payments, all of which tend to have an inflationary effect upon the market. TEFAF says the Chinese art market dropped by 24% to $13.8 billion in 2012, mainly due to a slowdown in economic growth in China and a reduced amount of high quality, high priced works coming onto the market. It also seems that many art funds and other speculative investors in China pulled away from the market last year.
Of course, the most under-reported story in the art market last year was Sotheby’s joint venture in China, which gives the company the ability to have its own auction sales on the mainland. Last September, Sotheby’s invested $1.2 million and took an 80 percent stake in a joint venture with state-owned Beijing Gehua Cultural Development Group. The joint venture, called Sotheby’s (Beijing) Auction Co. Ltd., can take advantage of the new Tianzhu Free Trade Zone in Beijing being developed by Gehua. Sotheby’s will likely gain a sharp market advantage in coming years due to the joint venture, thus propelling the company into a dominant spot in both the auction and private sales markets in China. Other perks of the joint venture are Sotheby’s ability to hold sales outside the free-trade zone and, more importantly, their ability to partner with other entities outside of China.
In fact, on Tuesday of this week TEFAF announced that it has entered into “exclusive discussions” with Sotheby’s to explore the possibilities of developing a high-end art fair for China in 2014, via Sotheby’s joint venture. “TEFAF Beijing 2014,” they say, would represent a ground-breaking collaboration between a leading international auction house and the world’s most important art and antiques fair.
Come to think of it, what is the Chinese word for market share?