The Remarkable Resilience Of Contemporary Art As An Investment

Sep 28, 2022,09:15am EDT

We live in economically uncertain times, with many financial experts painting a bleak picture of what is to come. People are understandably looking for ways to secure financial stability via their investment portfolios.

Contemporary art has proven particularly viable in this regard. The art market is independent of the stock market and often termed “currency neutral,” meaning that its resell value, even when the economy is performing poorly, tends to remain high. This resilience is due in part to the market’s unique ability to regulate its own supply and demand, resulting in prices for artworks remaining relatively stable even during financially rocky periods.

Add to this the changes adopted by art institutions as a result of the pandemic, and you will see a clear shift in how contemporary art is being bought, sold and, most importantly, recognized as a powerful asset class for those looking to weather potential financial storms. As the founder of a private art gallery, I have seen this firsthand.

From Strength To Strength

While art itself evolves rapidly, the art market has traditionally been slower to respond to change. In 2019, online sales of art and collectibles accounted for just 7.5% of global art sales, according to the Hiscox Online Art Trade report. However, the pandemic catalyzed rapid change. By 2020, online sales had jumped to 15.8%, and by the end of 2021, nearly two-thirds of art buyers had bought art or collectibles online. The market quickly adapted to embrace technology and the virtual world, giving buyers and collectors access to resources like background information and, crucially, pricing data.

This pivot resulted in increased resilience. A report from Citi on the global art market showed that in the first seven months of 2020, art outperformed 10 major asset classes, including hedge funds and real estate, with contemporary art achieving the strongest gains, cementing itself as a powerful means to diversify investment portfolios.

Digital Transformation

The art market’s new openness to experimentation, digital advances and risk-taking has also led to online channels providing greater accessibility and convenience to buyers, opening up more opportunities for investment.

At the onset of the pandemic, art fairs and auction houses shifted to a digital infrastructure, investing heavily in digital viewing rooms and virtual reality. These proved worthwhile, with Art Basel’s online viewing room replacing its Hong Kong fair in March 2020, so popular that the site crashed. Meanwhile, major auction houses experienced a huge jump in online sales in 2020, with Sotheby’s reporting a 413% increase and Christie’s 120%.

With this shift to the online marketplace, a younger generation of buyers is becoming dominant. In 2021, Sotheby’s reported that the number of buyers under 40 had increased by 187%, and a study by Art Basel and UBS found that Millennials are now the fastest-growing constituency of collectors. The market has responded in kind, continuing to adapt to these buyers’ preferences for buying online to avoid missing out on this demographic.

From the viewpoint of the collector or investor, this rapid digital innovation not only creates more accessible markets that reach a wider audience but also compresses margins, ultimately benefiting the buyer.

Access To Art

Online art marketplaces are enabling contemporary art from all around the world to be accessed by global audiences and investors, presenting a great opportunity for those looking to diversify their portfolios, build their assets or begin their journey into art investment.

Online platforms allow smaller, emerging artists, often from diverse backgrounds, to become far more visible to a wider audience while offering fantastic investment potential to those who buy early—a win-win scenario for artist and investor.

Investors have unprecedented access to art. With adequate research and careful timing of investments, contemporary art has the potential to pay huge dividends, especially as demand in new categories, notably works from identity-focused emerging artists, increases.

Avoiding Potential Pitfalls

Contemporary art’s potential as an alternative asset class does not translate into guaranteed returns. Success in this unique market requires an awareness of potential threats and an understanding of how art investment operates.

Artworks, by their nature, are not as liquid an investment as other asset classes like stocks. Artworks are long-term investments that are unlikely to be quickly “flipped” into cash. An artwork should best be seen as a store of value: it is not optimized for income generation, nor will it provide dividends.

With long-term investments, it is important to factor in initial and ongoing costs. For art, these include shipping and handling costs, as well as long-term storage and maintenance considerations. Art, depending on the medium and materials, often has specific maintenance needs, and ignoring these can lead to depreciating value.

The unprecedented access to contemporary art, while overall helpful, also poses potential risks that investors should be aware of. Cutting corners on research or lowering your standards in the face of a quick deal can expose you to unnecessary risk. The art market can be complex, and careful research is vital to avoid overvalued, poor quality or even illegitimate artworks. When in doubt, consult with those already immersed in the art world: art advisors, experts, galleries or even the artists themselves.

Conclusion

A fall 2021 analysis from Bank of America termed 2021 the art market’s “recovery” year and 2022 its “new frontier.” Some of the key factors in this growth, according to the report, are low interest rates, the explosion in digital sales and ultra-high-net-worth wealth creation. Together, these factors have created the perfect environment for investment potential in contemporary art, allowing it to move beyond and exceed the somewhat niche traditional fine art market.

Though no investment is entirely without risk, contemporary art has shown remarkable resilience, while increased access to data and information in our digital age means sophisticated buyers can be confident in their investments. This new frontier of contemporary art has made it attractive and appealing to more people than ever before.

The information provided here is not investment advice. You should consult with a licensed professional for advice concerning your specific situation.