Art market update: Spring sales will test market resilience

The first half of 2023 will be a key test of the global art market’s resilience in the face of macroeconomic and geopolitical headwinds. During the art market’s post-pandemic recovery, sales at Christie’s, Sotheby’s and Phillips jumped 70% year-over-year in 2021 and another 13% in 2022,¹ setting an all-time high for the global auction market of $65.1 billion.² Now, in a macro environment characterized by decades-high inflation levels, continued Federal Reserve interest rate hikes, and recent financial market volatility, we are monitoring how the art market will perform in the near-term. The midseason London sales pointed to a resilient if not more cautious market, marked by continued demand but less speculation in the ultra-contemporary sector (which is not a bad thing), and a focus on more established areas of the market like modern masters and surrealism.

While the London auctions lacked major headliners this season save a few masterpieces, New York auctions in May will see large single-owner collections and high-profile estates, which were announced notably early in the auction cycle. These collections, along with strong guarantee activity (see graph below) and continued long primary market waiting lists, point to the continued strength of the U.S. art market, and of New York as the premiere global sales locale. The real test for the market, however, will be if the shallow depth of bidding for middle market works ($100,000-to-$1 million-plus range) will continue.

Table of contents

1. Current art market strengths
2. Current art market challenges
3. Q&A on LA’s dynamic art market
4. 10 things to know when lending or donating your art to a museum
5. 2023 Art Conservation Project: Preserving historically and culturally significant works of art
6. Bank of America’s museum and exhibition sponsorships worldwide

Current art market strengths:

Rise of art as a strategic asset class Despite volatility in capital markets, art prices have outpaced 2019 highs and valuations have risen steadily.³ Collector buying behavior has also proved uncorrelated to traditional markets. Between 2019 and 2021, the percentage of ultra-high-net-worth collectors who spent $1 million or more on art increased from 39% to 66%.⁴ Many collectors are purchasing art not only because they are interested in the aesthetic, intellectual and social aspects of collecting, but also with an eye on art’s performance as an asset class in the face of headwinds like inflation, rising interest rates and the shifting global banking system. Those who are seeking to use their art as loan collateral are taking advantage of stable valuations and lower margin call risk than borrowing against other asset classes.

Biography and provenance dominate Buyers continue to place a premium on narrative in and around the art they collect. Christie’s landmark $1.6 billion Paul Allen sale in November 2022 not only enticed buyers to pay a premium for high-quality art with prestigious ownership history, but it also fueled a growing interest in the “win-win” of selling art to benefit charity while affording sellers with compelling tax benefits. Additionally, we are in a market where the biography of the artist matters. Collectors, galleries and institutions are focusing on acquisitions by Hispanic-Latino, Middle Eastern and Asian artists who convey personal narratives in relation to their work. We also continue to see interest in overlooked female artists, with secondary market prices in this category growing by nearly 32%.⁵ Selectivity is key, however. Amid oversaturation in the emerging contemporary market, collectors have developed a keener eye, with prices particularly for work of younger artists⁶ softening by as much as 47% between 2021 and 2022.⁷

NFTs and offshoots remain influential Artificial-intelligence (AI) generated art and the use of blockchain technology, which emerged from the NFT boom, are here to stay. Spending on art-based NFTs has remained stable among high-net-worth collectors and increased by 4.5% since 2021, following the headlining Beeple sale at Christie’s. A robust 17% of their overall art spend was on digital art, including 10% toward NFTs.⁸ As we look ahead, blockchain technology will influence artists’ control of creative property, combat a lack of price transparency and help with authenticating works. In a world where the delineation between human and machine creation is increasingly blurred, there will be growing debate on whether AI-generated works are eligible for copyright protection and how living artists protect their original ideas.

Current art market challenges

Economic woes from the U.K. to China The significant drop in the U.K. pound sterling’s value against the U.S. dollar seemed fortuitously timed for overseas buyers traveling to London for auctions and art fairs in the fall of 2022. It correlated with sales at Christie’s, Sotheby’s and Phillips increasing by 22% from 2021 levels.⁹ But with slow economic growth and continued Brexit complications, most market observers predict the U.K.’s art market to be flat this year. China’s art market faces similar uncertainty. Last year, Chinese-mainland auctions declined by 33%.¹⁰ Severe lockdown restrictions undoubtedly played a major role, and despite the zero-COVID policy being a thing of the past, its effects may take a toll for some time. Even if the U.S. sees a soft economic landing, slower sales in markets like the U.K. and China will hamper global art market growth this year and further position New York as the premiere sales site for blue-chip art.

Restitution has become a hotly debated topic As the preponderance of restituted works grows, so does the significance of the topic itself. Most recently, heirs of Holocaust victims successfully reclaimed and resold Wassily Kandinsky’s 1910 masterpiece, Murnau mit Kirche II, at Sotheby’s this past March for an astonishing $44.4 million — a record for the artist. Further, potential legal and reputational risk has put pressure on European institutions to return works wrongly or unethically acquired. This has resulted in several noteworthy restitution cases involving Benin Bronzes, antiquities from the Middle East and paintings by Western European artists. Even lauded institutions are not exempt from the ethical imperative to return works that the public has long taken for granted.

Q: The Los Angeles art scene has been around since the 1960s and has seen cyclical prominence. What is driving growth now?

A: Los Angeles is home to a large community of working artists and important museums and galleries that show their work. The growth we have seen in LA during the last five years or so is driven by a growing collector base (notably, there were strong gallery and auction sales during the pandemic), and, in parallel, an expansion in art market infrastructure — more galleries and auctions — and the arrival of a world-class art fair with Frieze Los Angeles.

Q: Has there been an expansion in the collector community in LA?

A: Bank of America clients in Los Angeles have been spending more on art since 2018. As one example, the average monthly household spend on art for Bank of America Private Bank clients based in Greater LA has grown by over 300% since January 2021, compared to a slight decrease on average across the rest of the U.S.¹²

Q: The pandemic was a challenging time for businesses. Has the gallery scene in LA recovered?

A: Yes! Since the pandemic several galleries with existing locations in Los Angeles have expanded their footprints in the city. For example, Hauser & Wirth just opened a second location. There also has been a slew of new gallery openings — over 10 in the last year alone.¹³

Q: Does the expansion only apply to galleries, or has auction presence expanded too?

A: We have seen growth in both sectors of the market. For Los Angeles-based auctions, the volume of works sold has grown 350% since 2018, and the total value of works sold has grown over 250% since 2018.¹⁴

Q: Frieze Los Angeles just took place in February. How does the fair fit into Los Angeles’ art landscape?

A: Where many other, smaller fairs have failed to take root in the past, Frieze has found success in Los Angeles and has grown each year. The 2023 edition hosted more than 120 galleries from 22 counties.¹⁵ In addition to strong sales and a growing gallery roster, this success can be partly attributed to the fact that the fair’s majority owner is the entertainment agency William Morris Endeavor, which has helped drive strong support for the fair.

Q: Do you see this trend continuing?

A: I do. The art market is global and becoming more decentralized, with technology making it more broadly accessible. New York remains the largest and continues to be at the center of the art world, but the art community is looking for experiences and market opportunities outside of New York. Los Angeles provides a sustainable place to expand the art market.

If you’re lending… 

You cannot claim a charitable income tax deduction for lending works of art to a museum.

If you’re donating… 

Discuss your possible donation with the museum curator first. Museums tend to refuse more donations than they accept.

To base your charitable income tax deduction on the appraised fair market value (instead of the deduction being based on what you paid for the art), the museum must put your donated piece to a so-called related use. If the museum simply sells the donated art to raise funds, the donation will fail the “related use” test and your charitable income tax deduction will be limited to tax basis.

Museums often require you to make a contemporaneous donation of cash or marketable securities to help the museum with the donated work’s ongoing carrying costs.