Reality check for art markets

Art lovers’ heads often get turned by the spectacular figures achieved by the best-performing works at auction in a particular year. In 2023, for example, Picasso’s Femme à la montre sold at auction for almost $140m, and in the contemporary art market, Jean-Michel Basquiat’s The Nile changed hands for $67m and Francis Bacon’s sublime Figure in movement for $52m.

Likewise, in the South African market, leading auction house Strauss & Co moved Irma Stern’s Children reading the Koran for more than R22m with fees.

At first glance these astronomical prices indicate a healthy market, with global liquidity and collectors, both private and public, with deep pockets. The market reality is somewhat different, however, once you look beyond the big figures. The benchmark industry report, UBS and Art Basel’s Art Market Report analyses the performance of the global market on an annual basis. The 2023 report, just out, indicates the impact the dire global economy has had on what is normally a resilient market segment and a good hedge against fluctuations in stock market values. 

The report finds global fine art in 2023 in the doldrums, with sales declining 4% year on year to an estimated $65bn. While that total market value is marginally higher than the pre-pandemic benchmark of $64bn, this apparent increase represents a significant decline if inflation is considered. In the US, by far the dominant market for fine art, the rise in inflation between 2019 and 2023 is about 22%. A massive rise in global inflation has taken place since 2021, felt mostly in the steep rise in the cost of living around the world, for example in fuel and food prices. In the UK, the world’s third-largest art market after the US and China, inflation has been even higher over the past five years. What this really means for the art market is that the 2023 performance of $6bn in sales is in fact significantly below its 2019 level of $64.4bn.

Does this mean an ongoing stagnation and decline for fine art globally? An interesting comparison is with the major stock market indices over the same period. Art is often considered a “safe haven” investment, largely untouched by other market factors such as trade treaties, supply and demand and regional political and military conflicts. The major American stock market indices, the S&P 500 and the NASDAQ tech exchange, are now trading at all-time highs, even considering the impact of long-term inflation.

The comparison, again, is significant because of the US dominance of the art market, with more than 40% of sales in 2023, followed by China, the UK and France. In terms of market growth and share, Africa still fails to register as a sales destination as a continent, with African art still largely travelling to the major Western markets rather than being traded anywhere on the continent — including its two largest markets in Nigeria and SA.  

In the local market last year, as Strauss & Co previously reported, a similar picture of a flat market prevailed. The auction house serves as a useful bellwether for an unregulated market, with galleries in particular, as private businesses, under no obligation to reveal financial performance. Strauss increased their revenue marginally, by 2% to about R364m, but from 12% fewer lots sold than the previous year.

The big-ticket items sold at Strauss through the year provides a good guide to where collector sentiment and value resides in the local market. As mentioned, out front again was Irma Stern, whose Children reading the Koran, from 1939, fetched a new African record price of R22.3m. A world record for previously neglected black modernist Dumile Feni was achieved in May last year with a work on paper selling for R2.3m.

So where does this leave the art market? Locally, it seems it still has considerable upside for collectors and investors. With volumes of available work declining in response to a lack of liquidity in the local economy, and an undervalued currency, SA will continue to be an attractive art destination for international collectors, a noticeable trend in the past few years.