Economist Dr Clare McAndrew explains why the art market is rebounding

To mark the publication of The Art Market Report 2018, the founder of Arts Economics discusses her key findings with Art Basel’s Executive Editor Jeni Fulton

Economist Dr Clare McAndrew

What is the headline takeaway from the report this year?

2017 was a positive year, with a growth of 12% and sales totaling just under USD 64 billion following a period of uncertainty in 2015-2016. There was an uplift in the auction sector but also a steady rise in the dealer sector. Many fundamental economic drivers are positive again. There’s fairly robust growth in global wealth, consumer confidence is generally back, and, overall, financial markets are healthy. However, a lot of this has been driven by the top-end of the dealership and auction sectors.

Away from the top-end, performance has been mixed. While dealers that are turning over USD 1–50 million saw the strongest uplift in sales, those that made less than a million a year had negative results in some cases, and those making less than USD 250,000 generally saw a decline.

Compared to 2016, the Chinese market has grown by 14%. What’s driving this change?

Up to this point, China has been a slightly lower price market. Their top-end sales didn't normally exceed USD 50 million, but this changed last year, especially in terms of the auction sector. The dealer market in China is still quite small and is growing at a slow pace. In 2012, the market dropped quite substantially, and I think it's been sluggish since then. So, the 14% growth rate comes from a low base. But the auction sector has done better, with some individual sales above USD 50 million. 

What role do art fairs play in Asia?

The art fair concept is still catching on in Asia. At Art Basel in Hong Kong, people come to learn about art as buying. Fairs are an important cultural communication tool, Asian collectors become more interested in Western art, and Western collectors become more interested in Asian artists.

Auctions in China are driving the market and the gallery segment is still developing. Many artists interact directly with the auction houses – they're still learning about the concept of the gallery model.

Is it the interest in Western art growing?

Auction sales data and anecdotal research from buyers in Hong Kong show that there is an increasing interest in Western art as well, but this is developing only slowly. 

Do you think one of the drivers of the growth disparity is the so-called ‘superstar effect,’ where a few well-known artists attract the most attention?

The gap between the high-end and the rest of the market has become more pronounced in recent years. Works with prices above USD 10 million have outperformed other markets. There is a narrow focus on a small number of artists and the people who are selling their work, and this has had a big effect on sales. There are various reasons for it. Buying a work of art is a very large, infrequent, high-risk purchase for many people, and a way to reduce this risk is to look at what everybody else is doing, and consume what others are consuming. This creates a focus around a few artists at the high-end. As it becomes more concentrated, new buyers start to think that that's all the art market is. 

You found that only 14% of collectors actively resell. Why is this is the case?

In the surveys I did with UBS this year, I asked people to rank their top motivations for buying, and it's always the same reasons. People say it's aesthetic, passion, and the desire to support artists and culture that is driving their collection. Only a third of those surveyed considered return on investment an important motivation.

There has been a decline in gallery exhibition attendance. In your report, you note that, to a degree, art fair solo booths are replacing their gallery equivalents.

From the art galleries I've interviewed, many say that they don't see some of the collectors at all anymore. They come once a year instead of multiple weekends. A lot of the collector focus has shifted to art fairs, and while I think galleries will always hold exhibitions, some are cutting back. I'm sure you know yourself from going to fairs, it's not a really slow, reflective process like an exhibition. At the same time, it's an opportunity for some smaller galleries to reach a large audience of global collectors. I think some galleries are opting to be slightly more adventurous at fairs, using them as an exhibition rather than a sales platform, as they are realizing that the contacts from fairs generate sales all year.

In the UK, you report an increase in sales despite the ‘Brexit factor’ and the general economic malaise. Why do you think this is?

The UK is like New York and Hong Kong, a hub for international auction sales. It gathers a critical mass of the best kind of works, attracting enough buyers from around the world to make it a solid art market. So, the performance of the UK economy is not necessarily linked that strongly to what happens in the art market.

The bulk of the art market in the UK – in terms of value in both the dealer and the auction sector – is very international, and sales to buyers outside the EU have always dominated, so leaving the EU might have very little effect. It has potential for improving the market, in terms of breaking free of things like import VAT, resell rights, and the directives that are imposed by Europe that the UK art trade has been fighting. This could make it more competitive with the US.

The smaller galleries that have most of their client-bases in Europe will have a bigger issue though, in terms of selling and sourcing from the EU.

You write that online sales continue to be a challenge in higher price segments. But what is most interesting is that your research shows that brick-and-mortar outlets dominate online sales. Can you elaborate? Is it because galleries and auction houses are selling via their websites?

That's part of it. But it's also sales via third-party platforms, such as Artsy and Invaluable. I'm not optimistic about online sales particularly, but the reach for new collectors, and for people who don't know where to start, is fantastic. To increase the number of businesses in the middle and lower sections, the art market needs more buyers. A big chunk of new customers are buying online, and that's where I think market optimism is coming from.

What have been the most significant changes you have seen since the first Art Market Report in 2008?

There have been more changes during this period than in the previous 100 years. Until 2005-2006, Europe and the US dominated. But then there was an explosion of new global markets. China has been a key factor in terms of sales, but a lot of other markets on the buyer side have opened up, too. Also, the recovery following a recession has become a lot more rapid. In the 1990s, the market took about 15 years to recover, whereas, following the 2009 crash, it bounced back almost straight away due to a boom in Chinese sales. So there is a more diversified base, which protects the market as a whole. In terms of high net-worth individuals now, the Asian region is bigger than North America.

The Art Market Report is available to download here