The global art market's speculative surge: What it means for investors
An increasing number of art enthusiasts are acquiring pieces with the intent of swiftly turning them around for a profit — a straightforward form of art speculation.
Key points
Growing art market trend: Art is becoming a favored speculative investment, driven by shifting dynamics in the market.
Emerging artist appeal: Investors are increasingly turning to emerging artists for the potential of significant returns.
Navigating market speculation: Understanding the art market’s evolving nature is crucial for investors looking to capitalize on opportunities while managing risks.
According to art market analysis firm ArtTactic and international fine art insurance firm Hiscox Group, the global art market, in recent years, has seen a remarkable transformation, marked by a surge in speculative activity. One striking indicator of this trend is the dramatic increase in the number of “wet paint” works — artworks that come to auction within just two years of creation. In 2022, this figure more than doubled from the previous year, raising questions about the motivations behind these quick resales. While there’s no precise insight into the original purchase prices, it’s increasingly evident that many art owners are capitalizing on swift returns, underscoring a notable shift in the art world.
The art world witnessed a dramatic surge in the sale of fresh creations. In 2022, a remarkable 1,033 lots — defined as artworks hitting the auction block within just two years of their creation — were offered, marking a substantial increase from the 478 lots presented in 2021. This trend paints a clear picture: an increasing number of art enthusiasts are acquiring pieces with the intent of swiftly turning them around for a profit — a straightforward form of art speculation.
The traditional motives for art sales — commonly referred to as the “three Ds” (death, divorce, and debt) — still play a role, but they are no longer the primary driving forces behind quick turnovers. The more conventional reason for selling, a loss of interest in an artwork, doesn’t seem to align with the rapid turnover either. Typically, those who invest substantial sums in art pieces do not fall out of love with them within a year or two. Therefore, the prevailing theory is that these owners are strategically selling their acquisitions to generate profits.
This shift towards art as an investment has become increasingly evident. A study conducted for the Online Art Trade Report 2023 reveals that 63% of online art buyers surveyed view art as a strong or very strong investment motivation, marking a significant increase from 58% in 2020. Notably, the profit motive is particularly appealing to younger and newer art buyers, with 68% expressing a desire to invest in artworks for financial gains.
This inclination towards art as an investment opportunity is further supported by data indicating that artists under the age of 45 accounted for the majority (68%) of “wet paint” lots in 2022 at leading auction houses like Sotheby’s, Christie’s, and Phillips. Investing in emerging artists presents higher profit potential, as these talents continue to build their names and reputations. However, it also entails greater risk for speculators, as success in the mainstream art market is far from guaranteed for these rising stars.
The art market is currently dominated by the younger generation of artists. In 2022, an unprecedented 700 artworks created by contemporary artists under the age of 45 found their way to auction within a mere two years of their creation — a stark contrast to the 279 such works in 2021. Astonishingly, these lots constituted a substantial 68% of all the “wet paint” lots auctioned at renowned houses like Sotheby’s, Christie’s, and Philips. This remarkable trend underscores the frenzied demand for the creations of emerging, young-generation artists.
Over the past five years, artists with a graffiti-inspired style, such as Banksy and KAWS, have dominated the contemporary art market, ranking as the best-selling artists by value and the number of lots sold. Nevertheless, the economic landscape evolved in 2022, with investors shifting their focus to more established segments of the contemporary art market. British icon David Hockney emerged as the top-selling artist in 2022, marking a noteworthy departure from the dominance of Banksy and KAWS.
In the realm of 2022 art sales, David Hockney emerged as the reigning champion, topping the charts for sales value. Hockney’s artworks, crafted after the turn of the millennium, garnered an impressive $75 million. Hot on his heels were Asian artists Yayoi Kusama, with $62 million in sales, and Yoshitomo Nara, not far behind with $49 million.
Banksy, the leading artist in terms of the value of works sold in the five years leading up to 2022, experienced a decline in demand, with a 73% drop in auction sales of unique works and a 33% decrease in the number of unique works offered in 2022. Banksy’s record price, set in 2021 when “Love is in the Bin” sold for $21.9 million, marked a remarkable peak. The artwork had previously been sold in 2018 when his 2006 painting, “Girl with Balloon,” unexpectedly self-destructed shortly after auction.
With Banksy’s market receding, David Hockney took the throne in 2022 for works produced after 2000, raising $74.7 million — a nearly fourfold increase from 2021. The highest-selling painting of the year was “Winter Timber” (2009), which fetched $20 million at Christie’s in New York in November.
While artists like KAWS accounted for the most artworks sold in the period from 2018 to 2022, their presence in the auction market has significantly diminished, declining by 83% since its peak in 2019, ultimately placing KAWS in 17th place in 2022. In contrast, American-Ivorian contemporary artist Aboudia topped the list in the previous year, with a total of 75 artworks sold, followed by Damien Hirst, who made a remarkable comeback and ranked as the second-best-selling artist by the number of artworks sold (73 artworks), with a notable surge from 2021.
In the bustling art scene of 2022, Aboudia, the American-Ivorian contemporary artist and “Basquiat of Africa,” secured the top spot for the highest number of artworks sold. Aboudia, whose full name is Abdoulaye Diarrassouba, led the pack with an impressive tally of 75 artworks. Trailing closely behind were Damien Hirst, with 73 lots sold, and Yoshitomo Nara, who notched up 62 lots in sales.
In conclusion, the art market’s evolving dynamics underscore a growing trend of art as a speculative investment vehicle. Investors are increasingly drawn to emerging artists, driven by the potential for significant returns. While established artists continue to hold their appeal, the allure of quick profits in the art world has become increasingly irresistible. However, investors must tread carefully, as the speculative nature of the market carries inherent risks, especially when betting on rising stars. The art market is a dynamic ecosystem, and understanding its shifting currents is essential for investors seeking to capitalize on its potential rewards.