Collecting and Investing in Art - A Shift is Upon Us

By: Peter Frerichs

December 22, 2024

Originally published here

Insight Highlights

• Why people are spending less on art
• Shifting preferences
• The great wealth transfer

Collecting and investing in art can be a lavish undertaking. Nothing punctuates this point clearer than the November 2022 auction of the estate of the late Microsoft co-founder Paul Allen. A two-night extravaganza at Christie’s in New York brought out a star-studded room bidding on works from Paul Gauguin, Gustav Klimt, Paul Cézanne, and Vincent Van Gogh.

Christie’s estimated the 150-plus works would fetch valuations in the $1 billion range, but the final tally was a record $1.6 billion, the largest single-owner sale in history.1 Coming out of Covid, the collective art world was ushering in what was thought to be a rebound that would last a decade. Yet, sales in 2023 and 2024 are down.

For many high net-worth individuals (HNWIs), despite handsome stock market returns, increased global economic and political uncertainty appears to be affecting their investment decisions in art as an asset class. Yet, while short-term economic and political factors explain some of the dip, the art world is experiencing a shift in purchasing patterns as new, and younger, investors and collectors emerge onto the scene.

A Buyer's Market

Last year, the art market’s global turnover contracted by 14% compared to 2022. Total lots sold were up 5%, but big-ticket sales like that of Allen were sparse.2

Key figures for auctions of Fine Art and NFT works worldwide (2023)

Source: Art Market. 2023. “The Art Market in 2023.”

Buyers in 2024 have continued to balk at high prices, placing galleries in a difficult position. Independent Art Fair is a highly anticipated New York event, and their most recent showing tells the tale of a demand mismatch. Many of the fair’s pieces were priced from $20,000 to $50,000, but buyers collecting and investing in art were only paying in the $10,000 to $20,000 range.3

Art dealers are always reticent to cut prices for fear of signaling weakness in their clients' works. Yet, the high-ticket demand from just four years ago seems to be over, and now is a good time for bargain hunting, according to many industry experts.4

Investing in Art Has Some Spooked

The art market is finicky, but macro-level events do appear to be weighing on sales. HNWIs investing in art as an asset class are always concerned when there is uncertainty surrounding monetary and fiscal policies. The current softening that commenced last year aligns understandably with inflation, elevated interest rates, and global geopolitical turmoil.

Source: Frank, Robert. October 24, 2024. “The art market is in a correction as big spenders fade.” CNBC.

Paradoxically, stock markets globally (China excluded) have been on a tear, with the S&P 500 on its best streak in nearly three decades. Plenty of money has been and continues to be made, but industry veterans such as Alex Rotter, Christie’s chairman of 20th- and 21st-century art, chalk up the downturn to a general sense of unease.5

More Volume at Lower Prices

Valuations of art have moved into more affordable price brackets over the past two years. In 2023, transactions on works valued from $100,000 to $1 million increased by 21% compared to 2022.6 The lower the price bracket, the greater the volume, with 90% of transactions involving pieces priced under $12,000.

Global Fine Art and NFT Auction Market Breakdown by Price Range (2023)

Source: Art Market. 2023. “The Art Market in 2023.”

The high-end art market depends on Modern and Post-war works. Post-war sales in this segment did increase over the last decade, but the share of Modern pieces selling above 7-digits has declined dramatically.7 In 2023, only one piece by Picasso and another by Klimt sold for over $100 million. Just one year earlier, the $100 million threshold was shattered six times, a historical high.8

Number of 7-digit auction results per creative period in 2013 vs 2023

Source: Art Market. 2023. “The Art Market in 2023.”

The Great Wealth Transfer

Collecting and investing in art is ultimately driven by preference. Serious collectors and investors in their late 30s, 40s and 50s are a growing segment and the pieces that captivated Baby Boomers do not appear to be as highly valued or regarded moving forward.

A great wealth transfer is upon us. Baby Boomers, a segment that owns roughly half of the country’s wealth, will be passing down tens of trillions of dollars to Generation X, Millennials, and Generation Z through 2045.9

Source: Wolter, Sarah. May 16, 2023. “The Greatest Wealth Transfer in History Is Here, With Familiar (Rich) Winners.” The New York Times.

The good news for the art world is Millennials especially are less interested in traditional investments, but rather those that reflect their values and individuality.10 This bodes well for art dealers, but there may be a shift in preference to digital art and multimedia pieces. Collectors and investors under 50 may be less inclined towards classical pieces. A recent survey revealed 95% of collectors in their 20s and 30s sought out pieces that fulfilled an “emotional benefit.”11

Conclusion

Estimated annualized returns for the broader art asset class were 8.3% from 1985 to 2020.12 Art clearly remains an attractive long-term asset class, but the categories may shift with changing preferences. Galleries and auction houses will adapt accordingly, and the trendlines point to the “affordable market” segment continuing to grow.

The big-ticket items that made headlines have disappeared as of late, yet a new generation of collectors could change all that once Generation X hits retirement age. It’s a dynamic industry that is evolving with the times.

Sources:

1. Palumbo, Jacqui, and Holland, Oscar. November 10, 2022. “Record-breaking sale of Microsoft co-founder’s art collection surpasses $1.6 billion.” CNN.
2. Art Market. 2023. “The Art Market in 2023.”
3. Bank of America. 2024. “Art market update fall 2024: Opportunity knocks?”
4. Frank, Robert. October 24, 2024. “The art market is in a correction as big spenders fade.” CNBC.
5. Reyburn, Scott. September 2, 2024. “Global turmoil and rising taxes tilt art trade towards new era.” The Art Newspaper.
6. Art Market. 2023. “The Art Market in 2023.”
7. Ibid.
8. Ibid.
9. Royal, Ph.D., James. May 16, 2024. “The Great Wealth Transfer: What it means for your money.” Bankrate.
10. Tordoff, Jasper. June 3, 2024. “The Rise of Millennial Art Collectors.” MyArtBroker.
11. Ibid.
12. Robin File Art. 2022. “Art as Investment.”