The Definitive Guide To How The Art Market Works


 

The global art market has grown exponentially in the last two decades, and collecting art is no longer the preserve of an aristocratic elite. The hunger for contemporary art is now insatiable, with a broad spectrum of society desiring to buy and collect works. Not only to enrich their lives via aesthetic appreciation but also as a serious investment for the future.

 

At the Lyons Gallery, we firmly believe that every acquisition should be a marriage of aesthetic appreciation and wise investment. So we decided to put together the ultimate guide in understanding the art market and how to evaluate a good investment.  


How does the art market work?

It is important to understand the distinction within the art market, this being the primary and secondary market.

Primary market is the sale of an artwork for the first time; this is either purchased directly from the artist, a dealer, commissioned work. Therefore the primary market sets the benchmark for the initial value of an artwork. 

Secondary Market is all sales after the primary/first purchase, this includes galleries, private sales and art auction houses. This is also the stage where the value of the piece can increase drastically based on the artists’ history and skills over a period of time. This is also the stage where terms like emerging, mid-career, established and blue-chip artist step in. These terms help understand how to value the artwork and where the artist sits in the eyes of the art market. 

While a Deloitte Art and Finance report estimated that approximately $60-70 billion worth of art is sold every year, the art market is known to be a baffled market. As such, our art consultants at Lyons Gallery will help you navigate through the puzzling regulations whilst also teaching you the language of the art world to learn how to recognize a great investment opportunity. 


How does art appreciate in value? 

Just like any other investment assets, art does appreciate in value. Over the years, the Lyons Gallery has been collecting and gathering data of key external factors and observation of the market. So if you are considering how art appreciate, here are nine major points to consider.

Key Macro Driver of Art Market Returns

  1. Increasing demand via wealth creation among the global ultra-high-net-worth community
  2. Decreasing supply of circulation of artworks, as it is being acquired by museums and public collections
  3. International marketability allows for art to be transacted in any locale or currency
  4. Tangible, mobile store of value without a currency-specific denomination 

Key Observations on Art Market returns:

  1. Best performing art segment is post-war and contemporary art 
  2. Outperformance of Post war and contemporary segment over large-cap equities over last 20 years.
  3. Resilience of art returns during financial downturn, e.g 2011-2012 and 2008-2009
  4. Low correlation factors to other financial assets 
  5. Investment case for art as a risk diversifier 

What determines the value of art? 

One of the most asked questions from the art community is how does art gain value. While there are no clear answers, the value of a work is categorised by:

  1. The artist
  2. The artwork itself 
Pablo Picasso, The Dream. 1932

    The Artist

    The biggest determinant in the value of an artwork is the artist. Elements that determine the value of an artist can be either objective or subjective. 

    Objective drivers are defined as influences that are not affected by personal feelings or opinions. Subjective drives are the opposite of this, where personal taste, feelings and emotional reasons play a role in purchases. 

    Some important factors determining the value of an artist include: 

    • their relative fame
    • the type of character they are
    • what role they played or playing in history 
    • their past results in the art market. 

    “ Greater fame and prestige will generate a higher return on investment and lower downside risk, driving prices up.”

     

    Helmut Newton (1920-2004)

    The artwork

     

    • Size

    The value of an artwork can decline or increase depending on the size. When selling small or medium works, collectors tend to gravitate towards these as collectors homes are limited in wall space. 

    Larger artworks are marketed and purchased towards galleries or museums since they have the capacity and space to install them. The caveat behind this is that galleries and museums have a greater power and connections, meaning they are able to negotiate on the price. As such, investors might see a decline in large works at auctionings.

     

    • The medium

    Usually oil paintings are often seen as more expensive due to the production cost of the work. However this is not the case all the time, as the general rule is to purchase a medium that the artist is most known for or has created their best work on.

     

    Dark Room Photography

     

    • Date of creation

    This talks about the period when the artwork was created in the artists’ life. As this determines the level of quality in the work. As a later career or established artist, would have found their visual language many years before and had time develop/ push it further. In saying this, early career artworks by famous artists can be particularly rare, so this increases their value.

     

    • Subject matter

    This has various effects on the worth in a piece and is more determined on what type of market is being exposed to the work. For example, female nude are more popular within the male collectors, however in Middle Eastern cultures this isn’t the case. So religious and cultural context have a major effect on what is defined as a good subject matter.

     

    Terry O’Neill, Raquel Welch on the Cross. 1966

     

    • Recognisability

    If the artwork is a recognisable style by the artist, there is an increase in demand and desire. For example, the artist Monet is well known by the general public for his water lilies oil paintings. 

     

    Claude Monet, Water Lilies, 1915-1917Musée Marmottan Monet

     

    • Condition

    This is self-explanatory; to gain the fullest value of an artwork the condition ideally should be immaculate. For older artworks, the fewer amount of times it has been restored the better. 

     

    • Provenance

    Authenticity and history of the artworks is another major factor both objectively and subjectively driven.

    Each artwork has a list that clearly titles the ongoing ownership of the work. This distribution can have a side effect and decrease the value if it keeps appearing for sale. Provenance also contains an emotional appeal, giving it an increase in worth if the artwork has been in the hands of a celebrity or a major collector.

     

    • Exhibition History

    If the artwork was a part of an important public appearance or exhibition either within the artist lifetime or after it gives it more appeal. However, the freshness of an artwork to the market eyes, where it hasn’t been displayed on auction before, gives potential buyers excitement about the piece.  

     

    • Rarity

    Let's say that an artist has made a small number of works within their career can be more appreciated or desired by collectors compared to an artist that has produced large amounts even if they are a high valued artist.


    Here at the Lyons Gallery our dedicated team of experienced art consultants are here to help investors, collectors and buyers globally invest in art works that not only will be talking pieces in homes, businesses or galleries but investments that show healthy and steady returns year on year.
    To further enquire or have one of our art consultants reach out please email us at info@thelyonsgallery.com