The International Art Market in Observations. on the Art Trade over 25 Years. The European fine art foundation Prepared by Dr Clare Mc Andrew

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1 The International Art Market in 2011 Observations on the Art Trade over 25 Years The European fine art foundation Prepared by Dr Clare Mc Andrew

2 The International Art Market in 2011 Observations on the Art Trade over 25 Years THE EUROPEAN FINE ART FOUNDATION Prepared by Dr Clare McAndrew Arts Economics

3 Table of Contents Colophon Publisher The European Fine Art Foundation (TEFAF) Broekwal 64, 5268 HD Helvoirt The Netherlands T F E info@tefaf.com I Design & Production Ideebv, Maastricht, The Netherlands All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without the prior permission of the publisher TEFAF ISBN/EAN NUR 640 Foreword 7 Acknowledgements 9 Chapter 1 Summary of Principal Findings 11 Summary of Principal Findings 13 Chapter 2 The Global Art Market in Key Findings Art Market Overview The Distribution of the Global Art and Antiques Market Auction Sales Fine Art by Sector in Dealer Sales 55 Chapter 3 A 25-Year Overview of the Art Market 61 Key Findings Introduction The Growth of the Global Art Market: An Overview Factors Driving Growth The Art Market and the Economy Art as an Investment Credit and Financing Conclusions 97 Chapter 4 Personal Observations: 25 Years of the Art Market 99 Key Findings Introduction The Influence of Technology and the Internet Changes in the Structure of the Art Trade Changes in Buyers Changes in Supply Changes in Regulations and Legal Structures The Art Market and Recessions 132 Chapter 5 The International Art Trade Over 25 Years 137 Key Findings Introduction The Balance of Trade Imports Exports Trade by Sector Intra and Extra EU Trade Regulatory and Fiscal Framework 171 Chapter 6 Economic Impact in Key Findings Introduction Employment Ancillary Economic Impact Conclusions 190 3

4 Tables and Figures Chapter 2 The Global Art Market in Table 2a. The Global Art Market: Value and Volume of Transactions 21 Table 2b. Growth in Sales on the Global Art and Antiques Market 22 Figure 2g. Market Share of Fine Art Auction Market for Works Sold for More than 50, Figure 2h. Market Share by Sector of the Fine Art Auction Market Chapter 5 The International Art Trade Over 25 Years 137 Table 5a. The International Trade in Works of Art in Chapter 6 Economic Impact in Table 6a. Estimated Businesses and Employees in the Art Market (2011) 185 Table 2c. Growth and Change in Share of Fine Art in Table 5b. Imports and Exports of Art by Art Form (2010) 163 Table 6b. Ancillary Expenditure and Employment Generated Auction Transactions 29 Figure 2i. The Contemporary Art Sector: 2002 to Table 5c. (i) Intra-EU Versus Extra-EU Exports of Works of Art 166 by the EU Art Trade in Table 2d. Average Auction Hammer Prices for Fine Art Figure 2j. The Modern Art Sector: 2002 to Table 5c. (ii) Intra-EU Versus Extra-EU Imports of Works of Art 167 Table 2e. Changes Average Fine Art Auction Prices 38 Figure 2k. Dealer Sales by Sales Channel in Table 5d. French and UK Exports of Art to Japan, US, Figure 6a. Average Dealers Salaries (2011) 183 Table 2f. Averages and Median Fine Art Auction Hammer Prices 39 Figure 2l. Global Dealer Sales by Price Level in Switzerland and China 169 Figure 6b. Spending by the Global Art Trade on Selected Table 2g. Share of Lots Sold, Total Value and Number of Artists at Global Fine Art Auctions in 2011 by Price Bracket 40 Table 2h. Auction Sales Above and Below 50,000 in Table 2i. Market Share of the Contemporary Art by Chapter 3 A 25-Year Overview of the Art Market 61 Table 3a. Auction Records: Picasso and Van Gogh 66 Figure 5a. Total Global Imports of Works of Art and Antiques 145 Figure 5b. Imports of Works of Art: Europe and the US 149 Figure 5c. Imports of Art to China: Mainland Versus Hong Kong 151 Ancillary Services (2011) 187 Value and Volume and Average Prices in Table 3b. Global Art Market Share Figure 5d. Imports of Works of Art: BRIC and Emerging Art Markets 152 Table 2j. Market Share of the Modern Art Sector by Value and Table 3c. Year-on-Year Growth of GDP (%) 71 Figure 5e. Total Global Exports of Works of Art and Antiques 153 Volume and Average Prices in Table 3d. High Net Worth Population Figure 5f. Exports of Works of Art: Europe and the US 156 Table 2k. Market Share of the Impressionist Art Sector by Table 3e. High Net Wealth Figure 5g. Exports of Works of Art: BRIC and Emerging Art Markets 157 Value and Volume and Average Prices in Table 3f. GDP per Capita Figure 5h. Exports of Art from China: Mainland Versus Hong Kong 158 Table 2l. Market Share of the Post-Impressionist Sector by Table 3g. Sample of Price Records at Auction from Figure 5i. (i) Exports of Fine Art as a Percentage of Value and Volume and Average Prices in Total Exports of Art ( ) 160 Table 2m. Market Share of Old Masters by Value and Volume Figure 3a. Sales in the Global Art Market Figure 5i. (ii) Imports of Fine Art as a Percentage of and Average Prices in Figure 3b. High Net Worth Population 2010/11 73 Total Imports of Art ( ) 161 Table 2n. Share of Dealers by Turnover Figure 3c. Economic Growth and Contraction: 1985 to Figure 5j. (i) Average Intra-EU versus Extra-EU Exports of Figure 3d. The US Art Market, Inflation, GDP and the Average Works of Art 164 Figure 2a. Global Art Market Share by Value in Federal Funds Rate 83 Figure 5j. (ii) Average Intra-EU versus Extra-EU Imports of Figure 2b. Global Auction Market Figure 3e. Foreign Exchange Index: JPY to USD 1975 to Works of Art 165 Figure 2c. Total Auction Market Global Share by Value in Figure 3f. Average Prices of Impressionist Works in Yen and USD 89 Figure 2d. Fine Art Auction Market Global Share by Volume in Figure 3g. Euro: Dollar Exchange Rates 1999 to Figure 2e. Chinese Auction Sales 2004 to Figure 3h. Pound Sterling: Dollar Exchange Rates 1985 to Figure 2f. Volume of Auction Transactions in China 2004 to Figure 3i. Sectors of the Art Market Versus Financial and Commodity Indices

5 Foreword We have pleasure in presenting the latest study in TEFAF s annual series of detailed reports on the international art market. Dr McAndrew s research confirms the continuing popularity of art and antiques, which has been the key to global art market s resilience in these economically uncertain times The study takes the opportunity of TEFAF Maastricht s 25th anniversary to look back over the art market during the last decades and to assess the changes that have taken place. This year sees China s emergence as the world s largest art market and it is fitting therefore that this is the first TEFAF study to be translated into the Chinese language. As before, we are grateful to Anthony Browne for co-ordinating this research programme on behalf of TEFAF. Willem Baron van Dedem Ben Janssens President Chairman 6 7

6 Acknowledgements The information presented in this study is based on data gathered and analysed directly by Arts Economics ( from dealers, auction houses, art and antique collectors, art and financial databases, industry experts and others involved in the art trade. Methodological appendices are not included but information on methodologies and data is available directly from Arts Economics Much of the qualitative data presented in this report was based on over 60 interviews with key experts in the art market including dealers, auctioneers, collectors and others associated with the trade. My sincerest thanks to all of those participants who gave up their time and hugely valuable insights to make this possible. An important part of the research involved a global survey of art and antique dealers. I would especially like to thank Erika Bochereau of CINOA (Confédération Internationale des Négociants en Oeuvres d Art) for her help and support in making this survey possible, along with the presidents of the dealer associations around the world. My sincerest thanks and appreciation to all of the individual dealers who took the time to take part in the survey and interviews. Many thanks to all of the auction houses who also took part in the auction survey. Thanks especially to Robert Newland (Christie s) and Tom Christopherson (Sotheby s). The fine art auction data supplier for this report was Artnet, and I am most grateful to Thomas Galbraith for his diligent and generous help in collecting and working on the data. My thanks and appreciation also to Jie Wan and Gloria from Artron Art Market Monitoring Centre for their data on the Chinese art market. Many thanks also to Chris Sibley for his help with retrieving older auction data. I am particularly grateful, as always, to Anthony Browne for his generous time and encouragement in coordinating the research, and especially for his valuable insights into the art and antiques market. Dr Clare McAndrew Arts Economics 8 9

7 CHAPTER 1 Summary of Principal Findings

8 Summary of Principal Findings CHAPTER 1 Summary of Principal Findings The global art market continued to recover in 2011, advancing 7% year-on-year to 46.1 billion, an increase of 63% from the market crisis of The volume of transactions in the global art market also increased in 2011 by 5% to 36.8 million. The driving forces behind the continued recovery were strong sales in the Chinese auction market and the rise of fine art sales (over decorative art). China overtook the US for the first time to become the largest art and antiques market worldwide in 2011, with a share of 30%, based on both auction and dealer sales. The EU achieved aggregate sales of 15.6 billion in 2011, down 2% on 2010 and representing 34% of the global art market. The Chinese art and antiques auction sector continues to be the strongest growing market worldwide, with a dramatic rise in auction sales of 177% in 2010 and a further 64% in The Modern and Contemporary sectors combined to account for nearly 70% of the fine art market. Both sectors continued a strong recovery in 2011, leading them to levels in excess of the boom of 2007/08. Globally, the employment generated by the art trade amounts to 2.4 million, including 2 million direct jobs and 400,000 jobs generated in ancillary sectors. The global art market spent an estimated 11.5 billion on external support services in The art market in the EU directly employs close to 330,000 people in auction houses and dealer businesses, and supports a very conservatively estimated 134,000 jobs in ancillary and support services used directly by the art trade. 13

9 Summary of Principal Findings CHAPTER 1 The art market has more than doubled in size in 25 years and grew over 575% from its lowest point in 1991 to its highest in Globalisation of the market, and, in particular, new buyers and markets in China and elsewhere, have been instrumental in driving growth. The recession of the 1990s took nearly a decade to recover from, whereas the contraction in 2009 has been relatively short lived. This is due in part to the increasingly global nature of the art market. The growth of the internet and use of the online channel has changed the infrastructure of the market and its accessibility to both buyers and sellers, increasing transparency and dramatically altering the way business is conducted within the art trade. The traditional roles of dealer versus auction house have blurred and auctions have increasingly moved into the retail sector and expanded private sales. The retail gallery has also seen some decline as the art trade operates in an increasingly event driven market and moves more online. The art trade has become increasingly globalised in recent years; however the bulk of the global crossborder exchange of art, by value, takes place in the key international hubs of New York and London which accounted for in excess of 60% of all imports and exports. Imports of art have grown substantially in many countries over the last 25 years, increasing over 280% by value. The US has been the largest importing nation in most years, with an average share over the period of 38%. Exports of art and antiques have increased by over 500% by value over 25 years, and the UK and the US are the largest global exporters. 15

10 CHAPTER 2 The Global Art Market in 2011

11 The Global Art Market in 2011 CHAPTER 2 The Global Art Market in 2011 Key Findings The global art market continued to recover in 2011, with the market as a whole advancing 7% year-onyear to 46.1 billion, an increase of 63% from the market crisis of The driving forces behind the continued recovery of the market were strong sales in the Chinese auction market and the rise of fine art sales (over decorative art). The volume of transactions in the global art market also increased in 2011 by 5% to 36.8 million. This is up 19% from its low point of in 2009, but significantly less than the boom year of 2007, when nearly 50 million works were sold on global markets. China overtook the US to become the largest art and antiques market worldwide in 2011 for the first time, with a share of 30%, based on both auction and dealer sales. The US s share dropped by 5 percentage points year-on-year to 29%, as the market showed low negative growth of - 6%, reaching 13.6 billion in sales. The EU achieved aggregate sales of 15.6 billion in 2011, down 2% on 2010 and representing 34% of the global art market. The Chinese art and antiques auction sector continues to be the strongest growing market worldwide, with a dramatic rise in auction sales of 177% in 2010 and a further 64% in The Modern and Contemporary sectors combined to account for nearly 70% of the fine art market. Both sectors continued a strong recovery in 2011, leading them to levels in excess of the boom of 2007/08. 19

12 The Global Art Market in 2011 CHAPTER Art Market Overview The last five years of the art market have been among the most volatile in its recent history. The global financial crisis that started in 2007 is now considered to be one of the worst recessions since the 1930s, and led to the collapse of stock and property markets in many countries and the demise of several major financial institutions. The recession and uncertainty that followed strongly affected incomes and wealth as well as consumer confidence, leading to declining markets across the US and Europe. The distribution of wealth was also altered, both within nations and between them. In the US and other mature markets, the very rich lost relatively less in the crisis than the remainder of the population, widening the wealth gap between ultrahigh net worth individuals and everyone else. China and other markets, although not immune to global conditions, have suffered much less fallout to date in terms of income, wealth and spending. Although art fared relatively well during the downturn compared to other luxury sectors because of its long-term, tangible value, few sectors of the art market were spared from the contraction. The global market fell 33% over 2009, its biggest drop since the recession of Government policies and crisis fighting measures helped the global economy out of recession in many countries over 2010 and 2011, although concerns remain over the possible deterioration of the European debt crisis, currency issues, the potential effects of US countercyclical measures, and the remaining fragility of the banking sector in many countries. Despite these continued uncertainties in the wider economy, the art market rebounded strongly in 2010, especially in China and the US, rising by 52% to 43.0 billion. In 2011, the recovery continued with aggregate values of dealer and auction sales worldwide increasing 7% on 2010 to a high of 46.1 billion. This represented a rise in total of 63% from the trough in 2009, although it was still slightly less than the peak of 48.1 billion at the height of the recent boom in The increase in aggregate sales over 2011 was driven by two major forces in the market: another year of strong sales and record prices in the Chinese auction market and the rise of fine art sales (over decorative art). The volume of transactions in the global art market also increased in 2011 by just under 5% to 36.8 million. With two years of positive growth, the volume of sales has now recovered by nearly 20% from its low point of 31 million in 2009, but was still significantly less than the boom year of 2007, when nearly 50 million works were sold on global markets. In 2011 (as in 2010) the rise in the volume of transactions is less than the increase in values, indicating that some of the increase in the market was due to higher priced works coming onto the market, rather than simply a higher volume of sales. The growth of the market in 2011, while positive, was much slower than the years leading up to boom from 2003 through 2007, and is still below this peak in terms of value and volume of sales. This is due, in part, to the fact that sectors and regions of the market have been recovering from the contraction of 2009 at very different rates. The fine art market improved significantly in 2011, with values at auction increasing 35% year-on-year and volumes rising 14% globally. 3 The increase in values was driven by a number of highly priced lots sold during 2011, including some high profile sales in China. Among the top lots at auction in the fine art sector was a work by Chinese modern master painter Qi Baishi ( ) sold at China Guardian for million RMB ( 45.8 million) in May and a Wang Meng ( ) work sold at Poly International in June for million RMB ( 43.5 million). Other international records included Modern works by Clyfford Still (1949-A- No.1 at Sotheby s New York in November for $61.7 million/ 44.7 million) and Roy Lichtenstein (I can see the whole room!... and there s nobody in it! at Christie s New York in November at $43.2 million/ 31.1 million), as well as an Old Master painting by Francesco Guardi (Venice, a view of the Rialto Bridge, looking north from The Fondamenta del Carbon) at Sotheby s London in July $42.9 million/ 30.3 million). These and other high value sales boosted total sales and average prices over 2011, and account for the slightly more rapid increase in values over volume. Table 2a. The Global Art Market: Value and Volume of Transactions 2 Year Value ( m) Volume (m) , , , , , , , , , , Source: Arts Economics (2012) The analysis in this and subsequent chapters looks at sales in the global art and antiques market. The term art market is used to describe the market for fine and decorative art and antiques, dating from antiquity to the present. Rather than being a single, homogenous entity, this diverse market is made up of a combination of distinct markets, each developing at its own individual rate. Each underlying segment of the art market has its own experts, specialist dealers and sometimes auction houses, and dedicated collectors, and with their own independently moving price trajectories and inherent risks. 2 Data from 2002 through 2011 is based on actual auction and dealer sales data as well as projections based on the results from polling. 3 Fine art auction data comes from Artnet. Apart from increasing sales values of existing houses, a small part of the increase in value over 2011 comes from new auction houses or branches that only started to report sales in Using the same base group of auction houses as 2010, the increase in values was 30%.

13 The Global Art Market in 2011 CHAPTER 2 Table 2b. Growth in Sales on the Global Art and Antiques Market Year Change Change in value in volume 2002/ % -1.6% 2003/ % 4.7% 2004/ % 6.0% 2005/ % 13.8% 2006/ % 55.1% 2007/ % -12.2% 2008/ % -29.1% 2009/ % 13.2% 2010/ % 4.8% 2007 (Peak) to % -26.1% 2009 (Trough) to % 18.7% Source: Arts Economics (2012) There were an estimated 403,100 businesses in the art and antiques market in Global art sales are mainly split between dealers and auction houses, with a small fraction of sales directly from artists and other agents. The breakdown between auction and dealer sales varies widely between countries and sectors of the market. The dealer and gallery sector has generally taken longer to develop in some of the emerging and BRIC art markets for example, including China, where auction sales are still in a significant majority. In China in 2011, auction sales were estimated to account for around 70% of the market, while in Europe and the US, auction sales make up between 30-48% of total sales by value. When aggregated across all markets in 2011, the share of auction and dealer sales came out once again at nearly exactly 50:50, with the dealer share dropping just 1% on The Distribution of the Global Art and Antiques Market Apart from its rapid increase in size, the last decade has witnessed significant changes in the art market s geographical distribution of sales. The next decade will be the first period when emerging market countries contribute more to global economic growth than developed ones, and the wealth effects of this phenomenon have fed into the distribution of sales in the art market. The growth in emerging and BRIC markets is already creating a wave of new middle-class consumers active in the art market and driving changes in tastes and market infrastructures. While many of these markets have been important in producing greater demand for art and higher global buying from traditional art centres, China has emerged as one of the strongest markets worldwide over the last ten years, supported by a long history of its own market supply and rapidly increasing demand. The next decade will be the first period when emerging market countries contribute more to global economic growth than developed ones, and the wealth effects of this phenomenon have fed into the distribution of sales in the art market. In 2011, the distribution of the art market continued to alter, with perhaps one of the most fundamental and important changes in the last 50 years. The US has dominated the market as the largest centre for sales for several decades, however, for the first time in 2011, after another year of phenomenal growth particularly at auction, China overtook the US to become the largest international art market. The Chinese art market has been growing at an advancing pace, particularly since 2005/2006. In 2007, it became the third largest market worldwide, overtaking France with an 8% share. In 2010, with a 23% share, it surpassed the UK by 1%, which had held a comfortable second place next to the US for the last two decades. In 2011, China rose to dominance in the art market for the first time with a share of 30%, based on both auction and dealer sales of fine and decorative art. The US share of the market dropped by 5 percentage points on 2010 to 29%, losing its number one ranking for the first time in recent history. The US share of the market averaged 44% in the 20 years to 2010, although its margin began to narrow from 2006 (when it held a 46% share) as the market became increasingly globalised. Despite a strong recovery in sales in 2010 of over 65%, 2011 showed low negative growth of -6% in the US as the market reached 13.6 billion in sales. While some sectors of the market did particularly well, including fine 22 23

14 The Global Art Market in 2011 CHAPTER 2 art auction sales which rose by 2%, slower growth in the decorative sector and dealer market led to the overall net loss in sales on the previous year. The UK held a stable year-on-year share of 22% of the global art market with France again in fourth position with a 6% share, also unchanged on The EU as a whole achieved aggregate sales of 15.6 billion in 2011, down 2% on 2010 and representing 34% of the global art market. Its share has dropped by 19 percentage points from its high of 53% in The UK continued to dominate the European art trade with a share of 65% of the EU market, up from 59% the previous year. France was again the second largest EU market with a share of 17%, up 1% on 2010, followed by Germany (5%) and Italy (3%). The two leading markets of the UK and France both posted positive year-on-year growth rates in 2011 (of 8% and 6% respectively), however many other mid-sized markets in Europe declined in value including Germany, the Netherlands and Sweden, which all saw a significant decline in sales. These smaller markets tend to have more sales in the middle value range of the market, and their contractions during the year fits with the anecdotal evidence from dealers and auction houses that, while the top end of the market recovered well over 2010 and 2011, the middle market continues to struggle with a much slower bounce back in demand from the dip of Auction Sales The auction sector made up around half of the market s value in 2011, totalling 23.1 billion in sales of fine and decorative art. The transparency of prices and the public nature of sales data in this sector of the market has meant that it continues to be the basis for much of the analysis and research in the art market, unlike the data on dealers sales, which relies heavily on polling and qualitative research. The value of global auction sales of fine and decorative art and antiques in 2011 increased 11% on 2010 values, although it remained just short of the peak in the market of 24 billion in From its lowest point in recent years in 2003, the market advanced by 160% in value, driven largely by a thriving fine art market. Figure 2a. Global Art Market Share by Value in 2011 Figure 2b. Global Auction Market China 30% US 29% Billion Euro Rest of the World 7% Italy 1% Germany 2% Switzerland 3% France 6% UK 22% Source: Arts Economics (2012) 24 Source: Arts Economics (2010, 2011, 2012) with data from Artnet (2012), AMMA 4 (2012) 4 AMMA is Art Market Monitor of Artron. 25

15 The Global Art Market in 2011 CHAPTER 2 In 2011, China held a significant lead as the largest recorded auction market globally overtaking the US, with sales of 9.8 billion or a 42% share. The US, which had been the leading market for many years, fell into second place with a share of 23%. While the fine art market in the US showed low positive growth on values achieved in 2010, the decorative market contracted leading to an overall net decline to 5.4 billion. The EU auction market accounted for 6.7 billion in sales, with a share of 29% of the global auction market by value. The largest art auction markets within the EU were the UK, with a 19% share of the global trade and France with a 5% share. The volume of auction transactions also increased by 24% in The market share of auction transactions is more globally dispersed by volume than it is by value. Figure 2d shows the breakdown of the global fine art auction market in The US had the highest share of transactions, as it did in 2010, with 21% of the market, followed by China at 19% and France with 11%. The EU s share was 47% in Despite an increase in the volume of transactions on 2010, the EU s market share dropped 11% from 58% in 2010, due primarily to a greater number of recorded transactions in the Chinese market. Within the EU, the market share of transactions was similar to 2010 with the French market leading with 24% of the market, followed by the UK with 21% (up 1 percentage point on 2010) and Germany with 16% (down 1 percentage point). Figure 2c. Total Auction Market Global Share by Value in 2011 Figure 2d. Fine Art Auction Market Global Share by Volume in 2011 US 23% UK 19% France 5% Rest of the World 16% US 21% Switzerland 2% Germany 2% Italy 1% Rest of the World 6% Sweden 2% Austria 2% Switzerland 3% Denmark 3% Italy 6% China 19% China 42% Germany 7% UK 10% France 11% Source: Arts Economics (2012) with data from Artnet (2012), AMMA (2012) Source: Arts Economics (2012) with data from Artnet (2012) 26 27

16 The Global Art Market in 2011 CHAPTER 2 Table 2c examines fine art auction sales only, showing that many major markets had positive growth in the volume of transactions. Despite a growing number of transactions in 2011, both the EU and the US markets lost global share, while China saw a substantial rise in the number of works sold and bolstered its share by more than three times. Table 2c. Growth and Change in Share of Fine Art Auction Transactions Country 2008/ / /11 5 Share 2009 Share 2010 Share 2011 Austria 32.8% 19.0% 13.6% 3.1% 2.8% 2.3% Germany -38.7% 15.7% -0.3% 10.6% 9.3% 6.9% France -34.1% 5.0% 1.5% 17.7% 14.2% 11.2% Italy -73.7% 106.4% 71.0% 2.7% 4.3% 5.8% Netherlands -55.9% 31.0% -1.5% 1.5% 1.5% 1.1% Sweden -10.4% 23.6% -16.1% 2.9% 2.7% 2.0% UK -32.7% 26.3% 11.1% 12.3% 11.9% 9.7% Rest of EU -42.4% 79.3% 9.0% 6.2% 11.6% 6.7% EU -40.8% 33.8% 9.0% 57.0% 58.3% 47.2% Switzerland -20.7% 5.5% -3.1% 4.4% 3.6% 2.6% US 12.4% 31.4% 7.7% 23.2% 23.3% 21.2% China 8.6% 24.4% 75.8% 6.5% 6.2% 19.2% Japan -33.0% 24.8% 150.2% 1.6% 1.5% 2.5% Rest of the World -33.0% 24.2% 19.1% 7.3% 6.9% 7.3% TOTAL -29.4% 30.9% 15.8% 100.0% 100.0% 100.0% Source: Arts Economics (2010, 2011, 2012) with data from Artnet (2012) 5 In 2011, transactions recorded by Artnet included auction houses that did not exist or report data in To account for this, the change in transactions from 2010 to 2011 uses the same old base of auction houses for each year. Market share in 2011 is however based on all auction houses reporting to Artnet in

17 The Global Art Market in 2011 CHAPTER 2 The two premier auction houses of Christie s and Sotheby s continued to dominate many sectors and nations, although their combined market share has dropped in recent years. Based on auction results only (excluding private sales and other revenues), these two houses had a combined share of 35% by value of the total global auction trade of fine and decorative art. Christie s total auction and private sales were $5.7 billion ( 4.3 billion) in 2011, up 14% in dollar terms on 2010 and including sales of $7 billion HKD ( 700 million) in Christie s Asia (up 25% on 2010). Sotheby s reported an identical total of $5.7 billion (up 19% in dollar terms on 2010), of which 20% of auction sales took place in Asia (with 39% by value in the US and 31% in the UK). Although these two major houses achieved the highest aggregate values, many of the important second and third tier regional houses also account for significant sales. China Guardian s sales totalled 11.2 billion RMB in 2011 (approximately 1.3 billion), up 49% on Poly International also reported total sales of 12.1 billion RMB (or 1.4 billion). Other major auction companies in terms of values included Heritage Auctions in the US that reported selling just over $806 million in 2011 ( 623 million). According to a global survey of premier and second tier auction houses by Arts Economics in 2011, the premier tier auction houses were all classified as large companies with turnover in excess of 50 million. The majority (57%) of second tier houses were small companies with turnover less than 10 million, and the remaining 43% were medium sized companies with an annual turnover of between 10 million and 50 million. Sales figures for the main premier tier houses were up on 2010, and around two thirds of respondents predicted a rise in sales again in In the second tier survey, the majority of respondents (57%) felt that sales would be about the same in 2012, with 14% predicting that they would be higher or significantly higher and 29% anticipating somewhat lower sales. On average, around 80% of sales by value in the top tier houses were made at auction, versus around 82% in the second tier. Private sales averaged 15% of the turnover of the top tier houses, and only 8% for the second tier. The remaining sales were made via the online channel, which accounted for an average of 5% of the top tier total sales and 10% in the second tier. Auction houses were also asked about the origin and spending of buyers in The top tier houses reported an increase in spending by Asian and Chinese buyers, with the percentage of sales to Chinese buyers rising on average from 8% in 2009 to 21% in There was also some shifting between US and European buyers, with a drop in spending of around 2% by US buyers, with European buyers stable on average over Most of the second tier auction houses surveyed were based solely in one or a few locations in national markets, and reported that on average 70% of their sales were to home nation buyers, with 30% to buyers from overseas. The most important buyers for Continental European houses were those in countries in close proximity to their own and from the US, whereas in the UK they tended to include more Chinese and Russian buyers. In the US, key buyers varied but were primarily European and Asian. The Chinese Market The Chinese art and antiques auction market continues to be the strongest growing market worldwide. The rise of auction sales in Mainland China has been particularly dramatic over 2010 and Figures 2f and 2g show combined fine and decorative art auction sales in Mainland China, Hong Kong, Macao and Taiwan. The value of auction sales started its sharp ascent in 2005 when it more than doubled in value reaching 1.5 billion, and although the next few years saw more moderate growth, 2010 and 2011 marked steep rises in aggregate values with total sales increasing 177% The Chinese art and antiques auction market continues to be the strongest growing market worldwide

18 The Global Art Market in 2011 CHAPTER 2 in 2010 and a further 64% in From 2004, total auction sales have increased in value by over 1,000%, as both the supply coming onto the market and demand have expanded. The two largest houses of China Guardian and Poly International had their strongest years to date in 2011, and this was driven increasingly by highly priced lots. China Guardian reported the highest priced work on the auction market (as previously mentioned), and had four of the lots that were over 1 billion RMB (or in excess of 120 million) and 144 lots sold for over 10 million RMB ( 1.2 million). The records were in Modern and Contemporary sector as well as decorative arts and antiques. 6 Poly International, now the third largest auction house worldwide also had a number of record prices in Modern and Contemporary art, Old Master paintings, jade and other decorative sectors. The largest sector of the market in 2011 was Chinese painting and calligraphy, which accounted for 60% of the market by value and 54% of all lots sold. Ceramics and other decorative arts also made up a substantial 24% of the market by value and 23% by volume. The volume of auction sales also increased year-onyear in 2011 by 30%, after an already substantial rise of 59% in Figure 2g shows both the lots offered for sale and those actually sold at auction from 2004 to 2011, and it is evident that the problem of buy-ins has been increasing over time. In 2004, just over one third of the lots offered at auction were bought-in, whereas in 2011, the rate of buy-ins was 52%, up from 47% in This is an unusual trend in a booming market, as buy-ins generally fall as demand expands, and could indicate the combination of some increasing buyer caution and quality-related supply issues in the market. Figure 2e. Chinese Auction Sales 2004 to 2011 Figure 2f. Volume of Auction Transactions in China 2004 to 2011 Million Euro 10,000 9, , ,000 Lots Offered Lots Sold 8, ,000 6,000 5, ,000 4,000 2, ,516 1,560 2,012 2,152 2, , , , , , , , , , , , Source: Arts Economics (2012) with data from AMMA (2012) Source: Arts Economics (2012) with data from AMMA (2012) The decorative art and antiques records included a set of Yuan Dynasty handwritten books which sold for over 5 million and a bronze mirrors for around 1 million each as well as strong sales in porcelain, jade, and furniture.

19 The Global Art Market in 2011 CHAPTER 2 It is important to note that, at present, the Chinese art market, rather than becoming a principal international hub like London or New York, relies heavily on domestic buyers. The market structure is also dominated by auction sales with dealers and galleries, as yet, holding a much smaller share than in more mature markets. Despite its massive growth in recent years, there are several risk factors connected to the auction market that could threaten its future stability. The legal and regulatory framework of the market remains underdeveloped, and the problem of fakes and authenticity of works, particularly in smaller auction venues, is considerable. Due to the relatively short period in which the auction sector has developed, there is also a shortage of experts in some areas, connected with appraisal, valuations, authentication and insurance. Another key issue affecting the size of the auction market and its rate of growth over recent years is that, although the reported auction figures accurately reflect those items hammered down at auction, there are significant problems with non-payment and late payment. Under regulations in China, full settlement for winning bids is supposed to be made within a six-month period. However, a report released by The Chinese Auctioneers Association surveying 250 auction houses in China, stated that around 40% of the 2010 autumn season sales above 10 million RMB had not been paid by April Other less verifiable reports include complaints of false bidding by sellers or artists, the use of sales for bribes, and other speculative practices. However it is clearly difficult to establish the extent to which this happens. The Ministry of Commerce reported at the end of 2011 that it will be targeting the auction market over the next five years in an effort to improve existing auction regulations, cultivate the development of auction houses, promote fair competition and enhance the supervision of illegal practices. The Ministry is aiming for a target of a more stable 18% annual growth from 2011 to 2015 and projecting sales in the sector to account for 6% of China s retail sales of consumer goods by The dominance of the Chinese market has been driven by expanding wealth, strong domestic supply, and the investive drive of Chinese art buyers. Although recent economic turmoil has created a more cautious buying climate in the rest of the world, growing domestic difficulties in Chinese property and stock markets and the lack of other alternatives (without a developed bond market or fully convertible currency) appear to have lead to a significant amount of substitution into art as an investment by Chinese consumers. The Chinese property market in particular has been a foundation of China s growth in the past two decades, and has underpinned crucial sectors The dominance of the Chinese market has been driven by expanding wealth, strong domestic supply, and the investive drive of Chinese art buyers. Growing domestic difficulties in Chinese property and stock markets and the lack of other alternatives have lead to a significant amount of substitution into art as an investment. in the Chinese economy including construction, steel and cement. However years of speculation and booming demand led to a significant bubble in the market, with property prices increasing at an unsustainable rates in some of the major cities. A number of strict market-cooling measures were introduced into the property sector by the Chinese government over 2010 and , which made art an attractive alternative for some mid-level and wealthy collectors. While this has worked in favour of the art market to date, there are fears that the deflation or burst of the property bubble may bring tightening credit conditions and less cash for transactions in all markets in future. 9 If China enters a credit crunch, this may influence art buyers in the next two years, although it is difficult to predict if they will pull back on spending to the same extent that was witnessed in US and European markets over 2009, as the country s relatively mild slowdown in growth still leaves its economic trajectory markedly above its major Western counterparts. Although many market experts are predicting that the market may even off and experience slower and more stable growth in the next few years as demand slows, given the evidence of some over-supply in the auction market, it is unlikely to experience the same intensive supply-induced contraction as witnessed by Western markets recently China Set to Boost Auction Industry, Restrain Abuses. Global Times, December 23, These included increasing mortgage deposit requirements to 30% for first homes, 60% for second homes and prohibiting many mortgages for third homes as well as limitations on purchases in some regions, credit-quota limits, higher benchmark lending rates, and new property taxes in some cities. 9 Ratings agency Standard & Poor s has downgraded its outlook for China s property development sector to negative from stable, following tightening credit conditions in the country and slower sales in Beijing s tightening of monetary policy to rein in inflation and prevent a property bubble has heightened concerns that developers will struggle to raise funds as credit dries up. Standard & Poors predicted a 10% correction in the property market over 2012.

20 The Global Art Market in 2011 CHAPTER 2 Fine Art Auction Prices The fine art sector of the market again rose to dominance in 2011, driven by a number of high value paintings sold in the Modern, Contemporary and Old Master sectors. Fine art dominated during the boom up to 2008, gaining significant share over the decorative art and representing up to 70% of the market by value. 10 Sales of fine art relative to decorative art and antiques fell in 2010, with an average share of fine art as a percentage of overall sales falling from 53% in 2009 to 49%. In 2011 however, the average share of fine art in top tier auction houses was 67%, while in the second tier houses, fine art rose from 45% of sales on average in 2010 to 48% in In the lower tier houses, decorative art continued to dominate, with a high number of low value decorative transactions accounting for up to 70% of sales. In general, decorative art tends to have a higher volume of lower priced transactions. In some national markets such as China however, decorative art has achieved higher values than fine art in recent years, with a number of record prices in porcelain, bronzes and other wares. In 2009, average prices in ceramics and other wares exceeded average prices in fine art. However in 2011, record sales in the fine art sector meant that average prices in the decorative arts were around 85% of those in fine art. Table 2d examines average prices in the fine art auction sector by country over seven years. The UK had the highest prices in the EU, as it did in 2010 and over the entire period shown, with values over four times that of its closest rival France (at 50,125 versus 11,623). Average prices in the UK were also higher than the US, as they have been since Average prices in China (at just under 36,000) were also ahead of the US in Table 2d. Average Auction Hammer Prices for Fine Art Country Austria 6,614 6,840 11,362 8,993 7,785 10,650 8,062 Germany 4,145 4,127 7,001 4,249 5,417 6,070 6,650 France 5,501 6,378 9,095 6,629 16,271 11,056 11,623 Italy 7,837 9,048 9,539 7,969 13,532 7,895 5,267 Netherlands 6,052 8,366 12,280 5,952 9,852 11,198 8,713 Sweden 4,157 5,239 14,252 6,954 5,402 7,670 7,750 UK 25,772 33,135 59,990 56,450 31,746 48,512 50,125 EU 5,569 6,190 12,997 10,666 14,910 16,689 16,307 Switzerland 7,584 9,776 13,808 7,848 8,321 14,318 17,504 US 35,505 47,826 84,683 51,550 22,683 37,946 30,402 China 12,632 12,138 14,515 16,247 14,995 27,820 35,922 Japan ,505 9,551 7,868 10,124 5,482 Singapore ,695 13,049 14,909 14,022 17,456 UAE ,718 27,959 56,309 28,398 Source: Arts Economics (2010, 2011, 2012) with data from Artnet (2012) and AMMA (2012) The fine art sector of the market again rose to dominance in 2011, driven by a number of high value paintings sold in the Modern, Contemporary and Old Master sectors For the purposes of this analysis, fine art includes paintings, sculptures and works on paper (including watercolours, prints, drawings and photographs), while decorative art includes furniture and decorations (in glass, wood, stone, ceramic, metal or other material), couture, jewellery, ephemera and textiles. 11 Average prices for China in Table 2d are derived using data from AMMA (2012). Fine art is defined as paintings, calligraphy, oils and Contemporary works, and China is defined to include Mainland China, Hong Kong, Taiwan and Macao. Values were converted to hammer prices for consistency with the global data.

21 The Global Art Market in 2011 CHAPTER 2 In 2011, the major markets in the EU experienced marginal increases in prices with the UK increasing 3% year-on-year and France by 5%. Many of the mid-sized markets declined however, and prices in the EU as a whole fell by 2%. After rising by a substantial 67% in 2010, prices in the US fell by 20% in Average prices have fallen a total of 64% in the US from the height of the boom in 2007, when they had reached close to 85,000. Average prices in China increased by 86% in 2010 and then by a further 29% in Prices have increased 184% since 2005, underpinned by a number of high value lots at the major houses in Mainland China and Hong Kong. Average prices can be influenced by a small number of very high or low prices. In most cases in the art market, prices tend to be skewed upwards by a small number of high value sales. Where there is a low volume of sales, such as in some of the smaller markets, one or few very highly priced sales can push averages up, when the bulk of works sold are actually priced at a very low level. To gauge trends in prices over time and between markets, the median price is therefore also a useful comparative measure and is analysed in Table 2f. 12 Averages are generally closer to median prices when prices are distributed evenly around the average. In centres such as the UK, US and China where most multi-million dollar lots are sold, the average prices are significantly greater than the median in each of the years shown. Median prices in the US and UK are however only 6% of average prices, whereas in China they are around 24%, which although skewed upwards by high value lots, shows a higher centre of the market. The highest median price in 2011 was in the UAE, which is a smaller market with a low volume of high value sales. Table 2e. Changes Average Fine Art Auction Prices Country 2005 to to to to to 2011 Austria 21.9% -20.9% -13.4% 36.8% -24.3% France 111.3% -27.1% 145.5% -32.1% 5.1% Germany 60.4% -39.3% 27.5% 12.1% 9.6% Italy -32.8% -16.5% 69.8% -41.7% -33.3% Netherlands 44.0% -51.5% 65.5% 13.7% -22.2% Sweden 86.4% -51.2% -22.3% 42.0% 1.0% UK 94.5% -5.9% -43.8% 52.8% 3.3% EU 192.8% -17.9% 39.8% 11.9% -2.3% Switzerland 130.8% -43.2% 6.0% 72.1% 22.3% US -14.4% -39.1% -56.0% 67.3% -19.9% China 184.4% 11.9% -7.7% 85.5% 29.1% Japan % -17.6% 28.7% -45.9% Singapore % 14.3% -5.9% 24.5% UAE % 101.4% -49.6% Table 2f. Averages and Median Fine Art Auction Hammer Prices Country Average Median Average Median Average Median Austria 7,785 2,277 10,650 2,254 8,062 2,278 France 16,271 1,845 11,056 1,850 11,623 2,037 Germany 5,417 1,406 6,070 1,463 6,650 1,523 Italy 13,532 3,115 7,895 1,311 5,267 1,085 Netherlands 9,852 2,658 11,198 2,667 8,713 2,776 Sweden 5,402 1,686 7,670 1,809 7,750 1,890 UK 31,746 2,976 48,512 3,202 50,125 2,949 Switzerland 8,321 1,325 14,318 1,704 17,504 1,746 US 22,683 1,938 37,946 2,141 30,402 1,884 China 14,995 10,387 27,820 23,091 35,922 8,529 Japan 7,868 1,640 10,124 1,663 5,482 1,498 Singapore 14,909 6,636 14,022 11,900 17,456 4,824 UAE 27,959 15,172 56,309 20,546 28,398 10,314 Source: Arts Economics (2010, 2011, 2012) with data from Artnet (2012) and AMMA (2012) 38 Source: Arts Economics (2012) with data from Artnet (2012) and AMMA (2012) The median is a measure of central tendency that is used when distributions are skewed to get a better idea of where the middle of market is. The median price is simply the price separating the higher and lower halves of the distribution of prices: if prices in the art market were arranged from lowest to highest, the median price is the middle price or centre point along the spectrum. The median can differ from the average, as the distribution of prices may not be evenly spread around the average. If the median is less than the average, it indicates that averages are being pulled upwards by a small proportion of higher value sales. As has been the case in nearly all art markets and all countries over the last decade, the median price is lower, and in many cases significantly lower, than the average, indicating that prices in the fine art auction market are not symmetrical but heavily biased by a few very high prices which pull averages upwards, while the majority of lots are sold at the lower end of the price range.