Art advisory & financing
September 3, 2020

Still life or moving landscape: what next for art returns?

September 3, 2020
Dominic Picarda
Global Head of Content Strategy
Artwork in wall in art gallery

Times of economic stress have often weighed upon the global art market. But today's very low real interest rates may help drive returns over the coming years.

Throughout the ages, times of crisis have inspired great works of art. Or, as Mary-Kate O’Hare of our Art Advisory team so lyrically puts it:

“They [artists] have turned experiences of privation, isolation, fear, pain, and exile into powerful demonstrations of vision and critique, optimism and anguish, beauty, and joy.”

The present pandemic may well prove no exception, a point that Mary-Kate makes in her current series of articles devoted to this theme. 

But what effects might COVID-19 have on the market for art? Since the virus struck, the art market has largely imitated life. 

While galleries, auction houses, and art fairs largely closed their physical venues, sales activity shifted strongly online and to the private market, as Suzanne Gyorgy discussed.

Whereas overall sales at Sotheby’s in the first half of 2020 slid 30%, there was a record six-fold increase in online sales and virtually no fall-off in sales of privately brokered art.

By these measures, demand for art seems to be in pretty reasonable shape.

As of the end of June, major auction houses had resumed their marquee auction sales, substituting the usual live format with larger cross-category sales featuring a new hybrid of online and live phone bidding.

Bidders seemed to take this new format in stride.

While the sales may have lacked the energy of a packed saleroom, the sales combined for a total of $902 million in volume, including fees, across Sotheby’s, Christie’s and Phillips setting ten new artist records in the process.

Needless to say, though, one sales season does not a market make. 

And given the disruption from lockdowns and other restrictions – particularly in March – a decline in total sales volumes in 2020 seems inevitable.

So, what might the pandemic mean for returns on the art market as a whole?

Looking at performance previous crises might seem like the obvious step here.

For this purpose, we can turn to the Total Art Index, a benchmark of broad market returns. (Masterworks is a platform that allows anyone to invest in shares in blue-chip works of art.)

The Total Art Index suffered declines around some of the worst episodes of economic turmoil over the past half century and more.

These included the mid-1970s oil price shock, the deep recessions of the early 1980s and 1990s, as well as the Global Financial Crisis.

However, it may be that none of these periods offer a relevant template for art amid the pandemic.

One reason for this is because of how fast and decisively central banks acted when the health crisis erupted. Their massive monetary easing since March has helped to drive strong recoveries in the price of equities and corporate bonds.

The real 10-year Treasury yield – the nominal yield the inflation breakeven – recently hit a fresh all-time low below 0.9%.

And monetary conditions may well remain easy for the foreseeable future.

(Kris Xippolitos, our Head of Fixed Income Strategy, believes that the US Federal Reserve may not raise rates before 2023.)

The history of the last six decades suggests that this could be rather helpful for art.

Over time, art prices – as measured by the Total Art Index (which includes art across major collecting categories) – have often tended to move in line with real interest rates.

This was particularly noticeable in the decade from 2002.

(Steven Wieting discusses reasons for this relationship in the “Art in Investment Portfolios” section of this Citi GPS report.)

Still, it’s important to remember that low and falling real interest rates can be accompanied by muted performance in art prices.

From 2015 to 2019, for example, we calculate that annual art returns across all collecting categories were around 4.2% a year and 4.5% for Contemporary Art.

Compared to the Total Art Index’s longer-term average return since 1985 of 5.5% -  and that of the Contemporary Art Index since 1985 of 7.0% - its recent performance is rather more still-life than moving landscape.

It may be helpful to compare art to another asset that often shines when real interest rates decline: gold.

From 2015 to 2019, the yellow metal returned over 9.3% per year, outperforming art in recent years.

Gold’s strength during this period could partly represent a correction of its big fall after its previous run of strength that ended in 2011.

By contrast, art did not suffer the same sort of heavy falls in the early years of the last decade.

Still, after most of a decade of more muted performance, art prices may now be on the turn.

Especially if monetary conditions remain loose – as seems likely – art returns could thus resemble more of a motion landscape than still-life over the coming years.


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