30 December, 2021

Recently, Deloitte released their 2021 edition of the Art & Finance Report, summarising and analysing how the art world is currently navigating through numerous global challenges, from the Covid-19 pandemic to climate change. It aims to answer the big question of what art and culture can do to tackle many of these issues and how they are adapting to rapid changes and uncertainties. In this article, we break down the report’s main points.

On a positive note, 64% of art collectors claimed that the Covid-19 pandemic had made them more interested in alternative art investment products, with 65% saying that NFTs had captured their attention the most. In general, millennial HNW collectors were the highest spenders in 2020, with 30% of them spending over $1 million versus 13% of Boomers. Overall, younger collectors appear to be more driven by the financial aspect of owning art, but social impact and purpose-led investment are as equal to them as the emotional value of buying art. 

For the first time, according to a report by Credit Suisse, more than 1% of all global adults are US dollar millionaires, now numbering 56.1 million. This increase of HNWIs could, in turn, trigger a demand for alternative assets, especially for those looking to diversify amidst a climate of rising inflation. Of collectors surveyed, 40% said portfolio or asset diversification was one of the main reasons for buying art, while 70% said this represented one of the key reasons art should be included in a wealth management service offering. 

While global sales of art and antiques reached $50.1 billion in 2020, down 22% on 2019, online sales of both reached a record of $124 billion, doubling in value on 2019. It reached the record share of 25% of the market’s value. For the first time, the share of e-commerce in the art market has surpassed that of general retail: 9% of total sales in 2019 to 25% in 2020. Indeed, 22% of the lots of fine art sold in 2020 were in online-only sales , twice the share in 2019. That said, works priced over $1 million made up only 6% of online sales compared to 58% of offline sales. 57% of HNW collectors prefer to buy from a gallery or physical space, while 29% prefer to purchase online and 14% by phone or email. This continues to demonstrate that art sales work best as a combination of online and offline channels. 

In terms of categories, post-war and contemporary auction sales have rebounded to pre-pandemic levels, after dropping by 72% in Q1 2020. This is due to the fact that major auction houses adapted their sales strategies to include more collectibles, including NFTs. Impressionist and modern art have also recovered following a weak period of sales in 2020. They amassed $1.53 billion in sales over the first half of 2021, only 3% below pre-pandemic 2019 level. Auction houses have amalgamated 19th-, 20th- and 21st-century works, which have usually always been kept separate. This strategy is also proving to be effective. 

In a bid to broaden their range of clients and attract new audiences, auction houses have renewed their focus on collectibles, largely enabled by the growth of online sales. The biggest demand observed was for classical cars, followed by the decorative arts and furniture, jewellery and watches, and finally, NFTs. 

Unsurprisingly, over the past nine months, NFTs have become mainstream in the art market. This is largely due to the fact that new technology and innovative developments, including the tokenization of non-bankable assets, could enable art and collectibles to be more easily integrated into asset management allocation strategies.

“According to a recent article by Reuters citing data from crypto analytics platform DappRadar, NFT sales value across all categories reached just under US$2.5 billion in the first half of 202, up from just under US$13.7 million in the first half of 2020.”

We saw major auction houses, in addition to museums, such as the Uffizi Gallery, adopt them over the past year, strategically readying themselves for a future around more digital collectibles as a way to reach new audiences and create more sources of revenue for artists. 

Similarly, 33% of wealth managers said their clients had expressed a greater interest in NFTs, fractional ownership (29%), art investment funds (25%) and social impact investment in culture (21%). 26% of art professionals also claimed that fractional ownership and tokenization could become key investment products for their clients. Transparency appears to be the key to ensuring art market growth, with both art collectors and professionals identifying it as an important challenge to overcome. 

According to Deloitte, recent developments around NFTs could be a precursor for major innovations and upcoming changes, further bridging the gap between art and finance. The younger generation of art collectors (under 35s) is essential in driving change and a positive future for the art market, and they require “a new tech-focused art and wealth management strategy”. In order to successfully reach them, the art market will not only need to continue investing in innovation but also demonstrate a dedication to and strong interest in social impact and purpose-led investments, while also placing a strong emphasis on the financial aspect of art ownership. In short, wealth managers and art professionals alike need to be aligned with the changing needs of this new generation of collectors and better understand the role of technology in this process. 

Sources:

Art & Finance Report 2021, 7th edition, Deloitte, https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/artandfinance/lu-art-finance-report-2021.pdf