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Art market update: A new equilibrium

As auction sales level off in 2023 from highs reached a year or so ago, the art market recalibrates with more conservative pricing, risk management and an unquenching demand for A+ works.

Collectors crowd the aisles and art dealers’ booths at TEFAF, The European Fine Arts Fair

The Spring 2023 auctions saw mixed results with less competitive bidding and sale totals at Christie’s, Sotheby’s and Phillips, down 18% year-over-year.1 Although the decline in sales was one of the major headlines coming out of the May auction season, there is more nuance to the health of the art market than the story of a double-digit drop. In many ways, 2021 and 2022 were outlier years for the art market as sale totals were buoyed by a glut of supply, pent-up demand and abundant liquidity.

Even in the face of sustained interest rate hikes, stock market volatility and the looming threat of a recession, sell-through rates at auction remain strong (if not at more conservative estimates), dealer participation in the ever-expanding global slate of art fairs is high and collector sentiment in the art market remains optimistic in the long term (if not more cautious in the near term).

As we head into the November New York sales, we expect art prices to continue to stabilize and certain collecting fads, which raised speculative bidding over the past two years, to lose steam. While some collectors will continue to operate more conservatively this cycle, others will see opportunity in acquiring fresh work by mid-career artists, acting as a third-party guarantor at auction and participating in the thriving secondary market for luxury goods. In addition, we are witnessing strong momentum and innovation in the broader art ecosystem, such as mergers and acquisitions, the rise of artificial intelligence (AI) and an evolving museum landscape. 

The “great wealth transfer” The past two years brought unprecedented supply to the art market, driven primarily by large single-owner sales of collections and estates. While headlines hailed the record-breaking $922 million auction sale of the Macklowe Collection at Sotheby’s and the $1.6 billion sale of the Paul Allen Collection at Christie’s, during the ensuing evening and day sales many works struggled to sell due to oversupply, softening demand and misaligned estimates. We expect to see less discretionary selling in the near term. However, over the next decade, the market will be propelled by the $84 trillion (including illiquid assets like fine art) that is expected to pass to the heirs of the baby boomers and members of the Silent Generation through 2045. The “great wealth transfer” phenomenon will drive high-quality supply to the art market, either directly in the form of single-owner estate sales or by the sale of inherited works.

The next generation of collectors has arrived

Percentage who owns an art collection by age and source of wealth

Source: 2022 Bank of America Study of Wealthy Americans.

Note: Legacy wealth: Defined as those with an affluent upbringing and an inheritance. Head start: Those with an affluent upbringing and no inheritance or a middle-class upbringing and some inheritance. Self-made: Middle-class or poor upbringing and no inheritance.

Premium on quality and curation The dominant narrative over the past five years has suggested that collecting trends are shifting away from traditional canonical artists in favor of hyper-contemporary, identity-driven art. However, we are now seeing collectors more focused on quality and curation, and less on speculation and trendiness, regardless of category. Demand for rare, A+ works within the Old Master, Impressionist, Modern and Post-War categories is formidable. Witness the record-breaking $108.4 million winning bid for Gustav Klimt’s Lady with a Fan and $43.5 million paid for Henri Rousseau’s Les Flamants in May 2023.

At the same time, the spirit of speculation — which bolstered the hyper-contemporary art market over the past two years — has been tempered by a maturing sense of discernment. As the market becomes less focused on neophyte hype, sales like “The Now Evening Auction” at Sotheby’s and “New Now” at Phillips will become more of a blend of established artists and select contemporary artists with strong markets and institutional interest, in dialogue with the art historical canon. Several prominent contemporary artists in this category, like Lois Dodd, Justin Caguiat and Nicole Eisenman, already broke their auction records this past spring. Simone Leigh did it twice in one week, culminating in the sale of Las Meninas II for $3.08 million at Sotheby’s. Leigh not only represented the U.S. at the Venice Biennale last year, but also just closed a solo exhibition at the ICA Boston.2

In addition, museums that were dominated by “wet paint”-type exhibitions over the past two years are revisiting and reexamining the careers of canonical artists while also challenging and broadening our definition of “canon” to be more inclusive than its historic track record.

Auction houses (and sellers) de-risk For sellers seeking to manage downside risk at auction, house guarantees are typically the gold standard because they offer an assured minimum price (in exchange for potential upside) at the time sellers sign with an auction house without the work being exposed to external parties. For the auction house, the benefit of house guarantees is that they are a tool to win highly competitive business. However, the drawback is that the auction house then takes on all the downside risk. That said, in the current environment, auction houses are pulling back on house guarantees and are increasingly engaging third-party backers to guarantee lots. In May 2023, Christie’s, Sotheby’s and Phillips made direct financial guarantees on 87 lots with an aggregate low estimate of $730.9 million. But leading up to the auction, they secured irrevocable bids on 85 of those lots adding up to $663.5 million,3 which greatly reduced their exposure to any underwhelming response for the works. We expect fewer house guarantees for the foreseeable future, and whatever guarantees that are made will likely be quickly offloaded to third parties. This will provide guarantors (usually dealers or savvy private collectors) with the opportunity to acquire a target work at a well-negotiated strike price or receive a fee that can effectively subsidize other acquisitions at auction.

Strength in luxury and collectibles The S&P Global Luxury Index was up 22.6% in the first half of 2023, with the secondary market for luxury goods, composed of the ultra-high-net-worth (UHNW) collector class, continuing to see record numbers since 2020. Christie’s alone reported $590 million in luxury sales during the first half of 2023, which is up 43% from last year. Sotheby’s sold Michael Jordan’s 1998 NBA Finals game-worn sneakers for $2.2 million, as well as a pink diamond and giant ruby that each sold for $34.8 million, establishing new records in the gemstones category. In fact, while the overall art market was down year-over-year, watches and jewelry became the third largest auction category, growing by 21.4% just this season.4 According to Sotheby’s, almost half of all first-time bidders are entering the marketplace through the luxury category. These entry-level, often younger buyers will not only become higher-value art collectors over time, but also active participants in the market as they sell and up-tier their collections.5 This is a segment of the auction market where sentiment has remained buoyant and is only gaining momentum.

Spending on art tops UHNW outlays

Ultra-high-net-worth Bank of America Private Bank clients spent an average of $188,000 on luxury items and collectibles during the first half of 2023. Spending on art topped the list during this period.

*For those who have spending in that category​

Source: Bank of America proprietary data as of August 17, 2023.

Mergers and acquisitions light a spark Some key art world organizations are turning to mergers and acquisitions to expand their operations and grow revenue. Galerie Perrotin, an international gallery exhibiting contemporary artists, announced in June 2023 that it was in discussions to sell a 60% equity stake to a financial buyer, Colony Investment Management. On the auction front, private equity-owned Bonhams acquired four smaller auction houses in the U.S. and Europe in 2022, keeping their names and regional identities, but becoming part of the “Bonhams network.” As a result, Bonhams’ 2022 annual revenue exceeded $1 billion for the first time, a 27% increase from 2021,6 while other auction houses have reported declines in sales. Frieze, the UK-based art fair group, is also acquiring two of the U.S.’s most established art fairs, the Armory Show in New York and Expo Chicago.7 Frieze will now hold four fairs yearly in the U.S., allowing it to double its footprint in the world’s largest art market. Growth through acquisitions and the resulting consolidation in the art industry will continue, as industry players and financial buyers remain bullish on the art fair model and the global contemporary art market.

Advances in artificial intelligence While the non-fungible token (NFT) market has softened since its 2021 highs, indicating that the initial hype has died down, conversations in recent months have largely shifted toward AI and “generative art.” Though AI-generated art is not especially new, the meteoric rise of ChatGPT (the platform reached 100 million active users in just two months) has created a cultural moment that has captivated the public.8 Established tastemakers — including Gagosian Gallery9 and the Museum of Modern Art10 — have mounted exhibitions of art produced by advanced machine learning models. Auction houses have followed suit by ramping up sales and marketing efforts around generative AI-produced artworks. While these works will not replace traditional artistic mediums, some artists will use advanced technologies as a tool for self-expression and social critique, as with any other new technology introduced in the past. Beyond generative AI-produced works, we expect art world businesses to embrace the potential of this new technology: art authentication, highly personalized advisory services and bespoke packing, shipping and tracking.11 While these changes will be gradual, AI could revolutionize an array of art businesses by allowing for the customization of experience in a way that is efficient and scalable.

Why art? Drew Watson, Head of Art Services, Bank of America Private Bank, talks about how his team works with collectors and institutions.

Drew Watson, Head of Art Services, Bank of America Private Bank

Drew Watson, Head of Art Services,
Bank of America Private Bank

Q: How long has the Art Services team existed at Bank of America?

A: Bank of America has been working with clients to provide solutions for their art and other tangible property for many years. Nearly a decade ago, we launched a formal offering to address the critical needs of collectors, families, foundations and museums throughout the collecting life cycle. This is when I joined from Christie’s to help build the team, grow our art services business and serve our clients. Our vision has consistently been to be the premier service provider for the art world.

Q: To that end, why art? What makes you unique in this space?

A: First and foremost, we believe in the intrinsic value of art and understand the role that it plays in driving local economies and creating a forum for cultural exchange. Bank of America is one of the leading corporate sponsors of art and culture in the world, and we serve the communities in which we operate by supporting major museum exhibitions, art conservation and cultural sustainability. We also understand the role that art plays in our clients’ lives as one of their highest valued assets both emotionally and financially. However, art is often left unaddressed in the context of a client’s financial life. Addressing this gap is an incredible opportunity for us to serve our clients.

Q: What kind of clients do you work with?

A: It’s quite a range. We work with private collectors, their families and family offices, as well as contemporary artists and art world businesses. Our clients also include private foundations (including artist-endowed foundations), as well as public institutions with art collections — of course, museums, but also hospitals and universities.

Q: How does Art Services work with clients, and when do they typically call your team?

A: Art collectors face key decisions as they move through the collecting life cycle. Starting out, one of the main pain points is access to quality material. After a while, there tends to be a focus on curatorial shifts to reflect evolving tastes and interests, which sometimes involves selling previously acquired art. Clients may also leverage their art collections to fund investment, business or philanthropic opportunities. Later, clients want to think through a plan for the succession of their collection and their collecting legacy. We work with clients in all these contexts, as well as many others.

Q: Why do some of your clients take out an art loan, especially now?

A: Regardless of the environment, clients are increasingly turning to their art collections as a strategic source of capital. Since art is an asset that doesn’t generate cash flow and that can be expensive and complicated to sell, many clients prefer to keep their art and borrow against it. Art can be desirable loan collateral because it’s a historically stable asset class over the long term. It’s valued annually (as opposed to mark-to-market prices daily), and clients get to keep it on their walls within the U.S. We see clients use an art loan for a variety of purposes: investing in hedge funds or private equity funds, as a working capital line for their business, to buy more art or to finance charitable donations. We’ve even had clients use art loans to fund the construction of hospitals and museums. Our approach to art lending is highly customized and tailored to the individual client and their need.

Q: You mentioned your team can help clients sell their art. What’s the biggest mistake that collectors make when selling?

A: Selling art is complex: It’s a time-consuming, nuanced process, and it’s not something that collectors do frequently. Sometimes clients sell because of changing tastes, but more often they sell for reasons related to the infamous “D’s”: divorce, death, debt, deaccession and downsizing. Regardless, two things are essential to attain the optimal selling outcome: having clear objectives and a sound strategy for how you will achieve them. We help clients save time and money by guiding them through this process every day, whether they are the builder, inheritor or recipient of an art collection.

Q: What advice would you give those who are just starting their collecting journeys?

A: Be active in the market. See as much art as possible, whether it be at galleries, art fairs or auction previews. Identify what you like, what you can afford and most importantly, what the market is for a particular work. A wise adage to follow is “collect with your eyes, not your ears.” In other words, buy based on the quality of the art you see and your personal connection to it, not what someone tells you is “hot” in the current moment.

Q: After 20 years in the art industry, what’s your long-term outlook on the market?

A: People collect art not only because it’s an asset that has historically appreciated over the long term, but also because it’s a reflection of one’s life experiences, values and interests. Art also has a seemingly magical ability to open doors and forge unexpected and valuable connections between individuals. Although what people collect varies greatly across generations, millennials and Gen Z make up a significant and growing portion of the collector base. This bodes well for the market’s long-term prospects.

Q: What’s your favorite part of your job?

A: Seeing some of the greatest art in the world and connecting with clients who share a common passion.

Q: Who is one artist, living or dead, that you’d like to have dinner with?

A: I would love to have dinner with Paul Cézanne. His work shaped the course of art history and had tremendous influence on both Henri Matisse and Pablo Picasso, as well as artists after them. I personally feel a connection to his work and its strong grounding in Provence. This year Bank of America funded the conservation of one of Cézanne’s paintings from his Mont Sainte-Victoire series at the Phillips Collection in Washington, D.C., through Bank of America’s Art Conservation Project. You can still see Mont Sainte-Victoire and the surrounding geography today just as Cézanne did from his studio in Provence.

Q: Which is your favorite art fair?

A: As a global advisory board member, my answer is, of course, TEFAF (The European Fine Art Foundation). One of the things I like the most about experiencing a work of art is its ability to serve as a cultural, religious, political, etc. window into a completely different era. TEFAF can offer 7,000 years of art history at just one fair and virtually limitless opportunities to learn and discover new things.   

Why I collect art . .

Wealthy collectors on what motivates their purchases of art

Source: 2022 Bank of America Private Bank Study of Wealthy Americans

Museums at a crossroads

A woman studies a painting on the wall of a museum

Museums have been facing a unique set of challenges post pandemic. Here are some areas that are top of mind for art museums today:

Tackling financial deficits According to the American Alliance of Museums, only one-third of museums have reported a return to pre-pandemic attendance levels.12 To counter this along with pandemic-era financial stress, some institutions are raising the cost of admission. Others are adjusting their gift acceptance policies to implement an 80/20 rule: if a donation is restricted to a particular initiative, 80% will stay restricted and 20% will be unrestricted to fund general operations. Museums are also asking for financial commitments on top of donations of art to account for the costs associated with stewarding donated objects.

Increased cost structure Expenses have increased as more museum staffs unionize and voice issues with pay and work conditions. Efforts to increase wages have been made, as have significant investments in digital infrastructure (including ticketing, guides and food service). Maintaining the physical infrastructure of art museums also comes at great cost. Storage and exhibition areas have strict requirements to keep artworks safe, and we are seeing more institutions needing to renovate or update these spaces. Some museums are doing this as they simultaneously contend with physical locations vulnerable to climate change.

Shifting donor base With an ever-aging donor base, museums need to engage younger donors now perhaps more than ever. Trends find younger donors place greater emphasis on social and racial justice causes. According to the 2023 Bank of America Study of Philanthropy, they are also increasingly making sustainable and impact investments. As long-time art museum donors pass on their wealth, museums need to cultivate the next generation, who want to see their values reflected in the institutions they support, with transparency and measurable results.

Evolving collection values Many museums are looking to reduce redundancy in their collections to rebalance them with new acquisitions by underrepresented artists. When choosing to deaccession, savvy museum leadership will carefully manage the potential reputational, financial and governance risks involved, and work with a trusted team of advisors to navigate this complex process. Additionally, restitution continues to be an important topic, and institutions are facing increased pressure to return illegally or unethically acquired works of art and cultural heritage. Major institutions such as the Metropolitan Museum of Art are confronting the issue head-on through voluntary repatriation and reparative practices.

Addressing systemic issues In museums, biases can be found in collecting and curatorial practices, as well as in the composition of leadership, staff and boards. Many museums are broadening their boards, staffs and collections to include perspectives representative of the diverse communities they serve. Museums are also facing pressure to build net zero emission strategies by upgrading energy inefficiencies in their physical locations as well as staying mindful of the emissions involved in the transport of works of art. Meanwhile, many donors are demanding museums manage their endowments with environmental, social and governance considerations.13

Bank of America’s museum and exhibition sponsorships

Bank of America provides funding for 10 to 15 exhibitions annually at museums of all sizes around the world, including art and cultural shows highlighting a diverse group of artists and art forms. Here are some of this year’s highlights:

Ed Ruscha’s 1964 Standard Station, Ten-Cent Western Being Torn in Half (private collection) is one of the works shown at “Ed Ruscha/Now Then” at the Museum of Modern Art, New York, through January 13, 2024.

Ed Ruscha’s 1964 Standard Station, Ten-Cent Western Being Torn in Half (private collection) is one of the works shown at “Ed Ruscha/Now Then” at the Museum of Modern Art, New York, through January 13, 2024.

Africa Fashion
Brooklyn Museum, New York
Through October 22, 2023
Showcasing a dazzling array of garments alongside music, visual art and much more, “Africa Fashion” celebrates the ingenuity and global impact of African fashions from the 1950s to the present. Bank of America previously provided support for the presentation of “Africa Fashion” at the Victoria & Albert Museum, London.

Museum of Modern Art, New York
Through January 13, 2024
Spanning 65 years of Ed Ruscha’s remarkable career and mirroring his own cross-disciplinary approach, the exhibition will feature over 250 works, produced from 1958 to the present, in various mediums — including painting, drawing, prints, film, photography, artist’s books and installations. Alongside the artist’s most acclaimed works, the exhibition will highlight lesser-known aspects of his practice, offering new perspectives on one of the most influential figures in postwar American art.

Black American Portraits
Memphis Brooks Museum of Art, Memphis, Tennessee
Through January 7, 2024
“Black American Portraits” reframes the history of portraiture to highlight Black American subjects, sitters and spaces. Featuring more than 100 works drawn primarily from the permanent collection of the Los Angeles County Museum of Art, the exhibition chronicles the many ways in which Black Americans have used portraiture to envision themselves.

Fashioned by Sargent
Museum of Fine Arts, Boston
October 8, 2023–January 15, 2024
“Fashioned by Sargent” explores John Singer Sargent’s complex relationship with his often-affluent clients and their attire. Along with about 50 paintings by Sargent, over a dozen period garments and accessories shed new light on the relationship between fashion and this beloved artist’s creative practice.

Pérez Art Museum, Miami
Through April 7, 2024
LOVE IS CALLING is the largest and the most immersive and kaleidoscopic of the artist’s Infinity Mirror Rooms. The darkened, mirrored room is illuminated by inflatable, tentacle-like forms — covered in the artist’s characteristic polka dots — that extend from the floor and ceiling and gradually change colors.

Our commitment to promoting cultural sustainability

Art and objects of cultural heritage are vulnerable to the impacts of time. The conservation of these works calls attention to the rich diversity and history of the human experience. Since 2010, the Bank of America Art Conservation Project has provided funding to conserve historically or culturally significant works of art for more than 200 projects in 40 countries. The artifacts included works that have been designated as national treasures. 

Recipients of Bank of America’s conservation grants

Art and objects of cultural heritage can be extremely vulnerable to time, and restoration can be critical to their survival. Bank of America provides support for conserving such works to allow society at large to be inspired by the rich diversity of the human experience.

Paul Cézanne’s Mont Sainte-Victoire

The strength and beauty of Paul Cézanne’s Mont Sainte-Victoire (1886-1887) has been diminished by deteriorated varnishes and aged surface coatings. Cézanne’s brushwork and brilliant palette in this and another painting belonging to the Phillips Collection, in Washington, D.C., will once again be visible when the restoration is complete.

William Cogswell’s portrait of Queen Lili’uokolani

Restoration will help preserve this 1892 William Cogswell portrait, Queen Lili’uokolani, featuring Hawai’i’s last reigning monarch. After the restoration the Hawai’i State Archives will return this and other restored works to public display in the state.

The oil painting Baptism of the Tlaxcalan Nobility, by Mexican artist José Vivar y Valderrama

This 1752 work, Baptism of the Tlaxcalan Nobility, by Mexican artist José Vivar y Valderrama, is one of four large-format oil paintings in the collection of Mexico City’s National Museum of History that are receiving extensive restoration. The project will be carried out on-site and in the open so that visitors can view the process behind returning these important works to their original condition.

The Light of the World by William Holman Hunt in its gilded gesso frame by Hilda Hewlett

The Light of the World (1900-1904), by William Holman Hunt, and its striking gilded gesso frame (1904) by Hilda Hewlett, has been a popular attraction in London’s St. Paul’s Cathedral. Their restoration and protection will enable the piece to return to its rightful place on the church’s walls.

Peter Paul Rubens’ The Judgement of Paris

The restoration of Peter Paul Rubens’ The Judgement of Paris (probably 1632-1635), now in The National Gallery, London, will not only remove years of discoloration and damage but will also allow conservators and art historians to apply the latest non-invasive technologies to study Rubens’ practices and process.

A 15th-century illuminated Armenian hymnal attributed to the artist Karapet of Berkri

This 15th-century Armenian hymnal, now in the collection of the Armenian Museum of America, has been attributed to Karapet of Berkri and is a rare survivor from medieval Armenia’s rich literary and artistic society. Its restoration will allow it to be appreciated far into the future.

Bank of America’s newest initiatives include support of the Monuments Men and Women Foundation’s work to research, locate and return works of art and other cultural objects that went missing during World War II. In addition, Bank of America is sponsoring the 20th Triennial Conference of the International Council of Museums Committee for Conservation in València, Spain, which focuses on cultural sustainability and current issues in conservation, collection care and related museum management. Lastly, Bank of America is funding the University of Delaware and the Alliance of HBCU Museums and Galleries’ Six-Week Introduction to Practical Conservation to expand the number of participants in the program, whose aim is to increase diversity in the profession.

Contact your advisor to find out if the Art Services team can help you.

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