Art Market Update

At Bank of America, we maintain a sharp focus on the art market and on the collectors, dealers, auction specialists and institutions that make it function. We work closely with many of you across four pillars: art lending, art planning, consignment services and arts endowment management. In this update, you’ll find our latest thinking about the transformation underway in the art market, and considerations for collectors.

Talk to your advisor about how these trends and insights might be relevant to your own collection and plans for the future.

THE ART MARKET’S RESPONSE IN THREE PHASES

The art market tends to lag the stock market and the broader economy. Pullbacks are typified by a misalignment of buyer-seller expectations. We’ve had three major art market pullbacks in the last 30 years: the 2008–09 financial crisis, the 2001 bursting of the tech bubble (compounded by the 9/11 terrorist attacks) and the 1990–91 global recession. The two most recent pullbacks had V-shaped recoveries, while the 1990 collapse took nearly a decade to bounce back, partly due to higher interest rates. We expect the post-COVID-19 art market to avoid a steep collapse and forge a three-phased path ahead: The Bridge, The Adjustment and The Recovery.  

The Bridge Phase (now through Fall). As the medical crisis wanes, local economies reopen and the world begins to spin again, we expect the art market will likely be supply-constrained until there is more economic clarity. But don’t expect deep discounts in Phase I. During the last crisis, the total value of art sold fell 40% from 2008 to 2009.* This was driven by sellers refusing to accept lower prices from bargain-hunting buyers, not price depreciation. Expect a similar phenomenon through the summer as consignors sit on the sideline awaiting economic clarity, and auction houses, art fairs and galleries shift to digital sales channels to salvage some revenue. Perhaps counterintuitively, the few works that do come to market will likely be met with surprisingly stable demand as stimulative monetary policy and a bored, quarantined collector base continues to buy. While the summer auctions will likely have thinner offerings, previously negotiated guarantees and stable demand should keep price levels stable.

The Adjustment Phase (Fall through Spring 2021). Beginning this autumn, the number of works coming to market are expected to spike sharply and outpace demand in some segments, pushing prices lower. Cash-strapped galleries in need of liquidity, distressed sellers impacted by market volatility and consignors who’ve psychologically accepted lower prices will hit the public and private market. Demand—a function of collector sentiment—will ultimately be determined by the medical reality, stock market levels and buyers’ liquidity. But we expect prices to recalibrate slightly downward during this period. Prices on the few masterpieces that trade should remain stable, but hyper-contemporary and middle market works will likely see downward pressure. Phase II is the time for bargain-hunting.

The Recovery Phase (2021 and beyond). The art market’s deflationary period should end as capital markets strengthen, the corporate profit cycle normalizes and economic sentiment rebounds. During this period, economies will begin paying for their monetary and fiscal responses to COVID-19 through inflation. This should again drive capital into art (the Fed can’t print Picassos). Primary market contemporary artists—particularly young figurative pre-crisis market darlings—will lag more established artists. Middle market galleries and museum acquisition programs will likely take years to recover, and some will close. Well-capitalized mega-galleries should emerge stronger and the art fair calendar will likely shrink. We expect virtual sales rooms, online auctions and digital channels to boom, but ultimately the art market could return to its social, tactile roots in Phase III (vaccine willing). 

IMPACT ON ART PRICES

THREE BIG ART MARKET TRENDS

1. Art ecosystem adapts. The art market’s infrastructure is in the midst of an extreme retrenchment. Galleries, auction houses and museums have cut or furloughed staff and are pondering how to function in this new environment. Expect a wave of consolidation and closures—the galleries we’ve spoken to say revenue is off by 80%. The American Alliance of Museums (AAM) estimates that 30% of museums will not have the resources to reopen, and galleries tell us that business will be down 70% this year. We expect the most rapid, potent innovation cycle we’ve ever witnessed in the art market’s history. This means a more accessible, impersonal, transparent, slightly dreary, virtual art world in the near term.
2. Auction house strategy. Last year three auction houses sold themselves—Hindman, Bonhams and Sotheby’s. A battle for market share has eroded industry margins, and the age of social distancing has accelerated their move into new product areas and digital sales channels. Expect the live digital-hybrid auction model to be used for its major sales for the foreseeable future. You’ll also see a proliferation of eBay-style multiday auctions with the option to offer a buy-it-now price and significantly more lots sold via private treaty sale than under hammer. Expect creative alliances among auction houses (for example, Guardian and Christie’s in China) and with the private market (Sotheby’s Gallery Network). Finally, look for the houses to make strategic bets in fashion, retail and even financial services.
   
3. Rise (and fall) of digital. Social distancing has expedited the art world’s transition to digital sales channels. We first saw the digital acceleration in March as Art Basel Hong Kong launched an entirely virtual fair. Expect all art fairs to have digital sales rooms. Galleries tell us that virtual sales are 25% of live fairs. The new format creates more price transparency, which drives market efficiency and accessibility. Recent online auctions and digital art fairs have proven surprisingly effective with high sales and up to 40% of auction bids coming from new bidders. You might never see an in-person day-sale auction again. While the digital dream is now real, it is wanting; as a result, we expect the art market to transition to a hybrid digital/in-person world, once we are able.
   

A LOOK AT THE MOST RECENT ART MARKET CORRECTION

The 2008–2009 financial crisis can help us think about our current environment. Global sales of art and antiques fell from $62 billion in 2008 to $39.5 billion in 2009 but returned to its pre-crisis levels by 2010.* The bounce-back was fueled by stimulative fiscal and monetary response similar to what we’ve seen this year. We expect the art market to take a similar path forward. 

SPOTLIGHT: BANK OF AMERICA ARTS AND CULTURE

As a major supporter of arts and culture nonprofit organizations, Bank of America is remaining steadfast in its support of our partners during this unprecedented time.

We are fulfilling all commitments made to our nonprofit partners, whether or not they are open and/or programming has been canceled, digitized or postponed. This includes paying full stipends to all partners in Museums on Us®, honoring commitments to sponsor exhibitions and performances, and rescheduling loans of our collection through our Art in Our Communities® program. We will also provide additional funding for digital programming and to address the impacts of coronavirus on institutions.

To ensure we can deploy funds to meet the immediate needs of the arts sector, we made the difficult decision to cancel the Bank of America Art Conservation Project for 2020. We plan to re-open the application process in the fall, and make selections and grants in the first half of 2021. This will mark the 10-year anniversary of the program, which has thus far helped 175 projects in 33 countries.

We believe in the power of the arts and shall be with our partners through it all. To learn more about our arts support, please visit bankofamerica.com/arts.

To learn more about our Art Services capabilities, contact Evan Beard, National Art Services Executive by email or 1.646.855.1107 or contact your advisor.