More from Dr Clare McAndrew and Adrian Zuercher
By Andari Suherlan and Vivyan Yeo

Key Points:

Online sales work well in younger markets in Asia.
Online platforms are important for smaller markets to reach a wider geographical consumer base.
Asia had the lowest percentage share of female artists represented by galleries in 2019.
With recent catalytic events, the current situation is a crucial testing ground for whether recent changes will remain relevant.
There has been a decline in sales in the modern art sector because the market is extremely supply-driven and there is a lack of highly-priced lots.
There will not likely be a shift in the standings of the three major art hubs, the United States, United Kingdom and China.
The values of the millennial generation will have significant implications for businesses worldwide.

Dr Clare McAndrew. Photo by Paul McCarthy.

Following the release of the 2020 Art Basel and UBS Global Art Market Report, Dr. Clare McAndrew (CM) and Adrian Zuercher (AZ) share their thoughts on the findings. Dr Clare McAndrew is the founder of Arts Economics, the economic research and consulting firm behind the renowned annual Global Art Market Report, which is currently commissioned by Art Basel and UBS. Adrian Zuercher is Head Asset Allocation APAC at UBS Chief Investment Office WM in Hong Kong. He chairs the Asia and China Investment Committee and also serves as a member of the Emerging Market Investment Committee. Together, they shed light on the future of online platforms, the representation of female artists in Asia, the rise of millennial collectors and more.

Blindspot Gallery at Art Basel Online Viewing Rooms. Image Courtesy of Art Basel.

The report suggests that both art fairs and the online channel are important means for assessing and finding new buyers, a goal that has consistently been ranked as the top challenge among dealers. With Art Basel Hong Kong cancelled and online viewing rooms presented as an alternative, are you optimistic about the growth of online sales in Asia in general?
CM: I’m optimistic about the growth of online sales generally. Besides being driven by their geographical reach, a lot of online buying is also motivated by the fact that most people now transact online in all other aspects of their life. Viewing technologies are also becoming more advanced and people can more clearly check the condition of artworks on screen. With mediums like virtual reality exhibitions, technology is making it easier to view things online.

But people still want the experience of doing things together. Buying art is very much connected to conspicuous consumption, so people don’t just want to buy for themselves. They want to be seen buying art, which works against the unique solitary process of buying online. That’s why social media platforms such as Instagram are very successful. You still get that kind of sharing, status-driven aspect.

Online sales also tend to appeal to lower-priced markets. Reports over the last few years have shown that while there is an occasional buying of artworks at the very high-end price range, most things online still tend to sell for less than USD10,000. The Art Basel Online Viewing Rooms are going to be a real test of how that price point might expand upwards. Particularly, there has been a steady increase in auction sales and I definitely see a future where only the highest-end works are sold offline in the auction sector. Costs such as the rental of auction spaces strongly work against having a physical auction. I could see a future where at auctions, most art in the lower-priced sector would be sold online.

For the Asian market in particular, the advantage of newer markets in Asia is that they can leap over hang-ups that older, more mature markets get caught up in. They don’t have some of the same entrenched views about how things should be, such as “you have to have your galleries structured in this way with a physical presence,” or that you need to “have exhibitions X times a year” etc. There’s that newcomer advantage to enter this new online platform with ease. Compared to galleries that have been around since the 50s and 60s, those that have been set up in the last 10 years may not have the same issues with change.

For online sales in smaller Asian markets outside China, the report suggests that buyers of higher-priced works are geographically distanced from sellers. This implies that for sellers, international reach is a key motivator for the growth of smaller markets. In the Southeast Asian art market, do you think international reach is particularly important and why?
CM: It is important for artists to have access to an international platform to develop their careers. If galleries want to expand their buying base, they also need to have access to bigger market places, whether it’s regionally to other areas within Asia or internationally to big bases of wealth in the United States and elsewhere. If you are in a base like the US or China, you can be quite self-sufficient but if you are in a smaller market, there’s a limit to how much you can progress in size. From a profitability standpoint, smaller markets want to use online platforms to get a wider geographical reach, especially if their home market is not going to be able to support a larger platform.

It is important to note that while international platforms like the US art market are considered self-sufficient, the players do not only consist of US artists alone. For instance, there are artists with bases in New York that are not from New York. If people want high-end contemporary art, they’d go to New York. If they want Asian Art, they’d probably buy it in Hong Kong, while old master works are particularly strong in the UK. As of now, buying is becoming extremely globalised but sales are quite regionalised in these three hubs.

It is proposed that reasons behind the persistent underrepresentation of women artists are often divided into two theories: demand-side and supply-side explanations. Could you elaborate on how these theories apply to the Asian market?
CM: The theories lie across the board to all aspects and they are not regionally specific. All the studies we’ve done have shown the underrepresentation of female artists in all regions. I was actually quite surprised that despite being a new market in terms of its labour force, female artists in the Asian art market are quite underrepresented. In the latest Art Basel and UBS Global Art Market Report, we published the share of female artists represented by galleries across the world. Regionally, Asia had the lowest result, with about 24% representation of female artists in comparison to about 30% in Africa and the Middle East, and the highest was in North America at about 30%. Compared to 2018, the figure in Asia has, however, increased year-on-year by about 5% but it is still the lowest. That could be a supply issue. Are there more artists available for galleries to represent? Or it could be a demand issue, where people are not buying works by female artists as much.

On a global level, the mass of people qualifying for main art colleges around the world is dominantly female, so there is nearly an oversupply of female artists coming out of colleges. But when it gets to the success trajectory, women seem to drop out of the market at certain stages. Globally, if you look at emerging artists according to the surveys we did in 2019, there is merely a 50-50 representation of male and female artists. But as you go up the career ladder, women seem to phase out. For the very successful artists, there is only about a third of female representation.

Art Basel in Hong Kong, 2019. Image Courtesy of Art Basel.

How does the recent cancellation of various major art fairs affect galleries in emerging markets?
CM: These cancellations are indeed part of a strange exogenous event that will shake the market this year. For gallery sales, the cancellations will have a large effect because fairs are generally the first point of contact for new collectors. To overcome this phenomenon, however, people are trying new things such as online viewing rooms and other promotional methods.

We have seen the market bounce back very quickly too. In 2009, the market took a big hit, but it was supported by a very wide geographical base of buyers and sellers that helped the market come back. Things will be tried and tested in 2020, and those that work will stick around. Sometimes it takes a catalytic event to spur on more changes in the market. These changes were happening slowly anyway, and the current situation is a good testing ground for whether these changes should remain relevant.

The sales of modern art declined significantly in 2019. Do you think this trend might change?
CM: It is difficult to say whether or not this trend will change. The main reason for the decline is that this market is extremely supply-driven and there is a lack of highly-priced lots. As we know, modern art is a sector that cannot replenish itself in the same way as contemporary art does.

There is also the perception that the economy is not that stable or not growing as fast as it was, and that perhaps it is not a good time to sell. If people hold back from selling, the market tends to decline. So it’s not necessarily that the demand is low. The demand will always be there if the right pieces come to the market. This was the case in the auction sector in 2019, where there was so much going on politically in Hong Kong, the US and the UK. Because the market is driven by scarcity, perceptions tend to affect the auction sector quite a lot.

The gallery sector did a little better because people find private sales to be much safer. In a downbeat, pessimistic market, a collector might put something up for auction and won’t get the price they wanted, which will affect people’s perspective of the work’s value in future sales. The risk is just too high during these times and that’s why it would be much better to sell privately. It is a tricky time in the world today and it will be interesting to see the developments this year.

Globally, the United States, United Kingdom and China have been the leading art markets. With recent monumental events such as Brexit, the Hong Kong protests and the virus outbreak, do you think there will be a geopolitical power shift in the art market?
AZ: The three major art hubs have historically held a dominant share of the global art market and we do not see a shift in the standings in the immediate future. With strong domestic sales and a highly developed cultural infrastructure, the US has retained the lead for the most part of 50 years and at 44% share of the market in 2019, is supported by one of the largest bases of high net worth and upper-middle-class income wealth. It is one of the most important centres for cross-border trading in art and although the aggregate market value fell 5% compared to last year, sales in the US remained at its second-highest level in history – despite US-China trade war tensions – growing over 130% since the market's low in 2009.

Ranked as the second-largest art market at 20%, the UK pre-Brexit has been the central, low-cost entry point for sales into and out of Europe acting as a gateway for trade between the EU and the rest of the world. Although the effects of the UK's departure from the EU are still to be seen post-2021, it is estimated that EU sales currently only make up around 20% of the value of imports and exports from the UK. Looking ahead, dealers surveyed in the UK were reported as being more optimistic compared to more mature markets, having the highest hopes for 2020 with 41% expecting a better year. This comes in addition to collectors in the UK having the strongest preference for buying from local galleries at 53%.

Amidst a slowed economy, China held its position as one of the top three largest art markets capturing an 18% share. Demand and supply issues combined with contracted auction sales contributed to a decline in market share of 10% year-on-year. The dealer sector, on the other hand, reported positive sales. Moreover, Hong Kong's tax-free environment continues to support the market's status as an important hub for art sales in Asia. For the longer-term, we see a shift from an investment-led economy to a more consumption-led economy in Greater China. And as this accelerates in parallel to a growing middle class, there is the potential for a broadening of the art market and buyer demand.

Overall, the top three ranked countries accounting for 82% of the global art market in 2019 were also the three largest auction market hubs with a combined share of 84%.

From a broader economic perspective, the COVID-19 outbreak is temporary as the situation can be controlled, with China being an example. Once the situation is under control and stabilizing, we expect the macroeconomy will start to pick up again, and this will also apply to the art market. We would expect consumer spending to pick up at the end of Q2/early Q3 this year, once the virus has been potentially contained in a large part of the world.

The Art Basel and UBS report reveals that in 2019, millennial collectors were the most active buyers and spent the most. Could you elaborate on how a growing number of millennial collectors might change the dynamics in the art market?
AZ: Millennial wealth, driven by inheritance, entrepreneurial activities and income growth is fast growing. By the end of this year, it is predicted to stand at 1.5 times the size of the US economy in 2015. The values and traits of this generation will have significant implications for governments, businesses and consumer spending trends worldwide.

The results of a survey of high net worth collectors in 7 markets carried out in 2019 by Arts Economics and UBS Investor Watch showed that millennial art collectors are engaging actively in the market, outspending their parents' generation by six to one last year. 48% of collectors surveyed in Singapore were millennials with dealers and art fairs reported as being their preferred buying channels. For a generation that might never own a car, their passion and appetite for buying art are encouraging. It may be a reflection of the unique and often experiential qualities of art and collectables as long-term assets.

Elsewhere in Asia, UBS surveys in Greater China on luxury expenditure have revealed that millennials are more confident than older consumers. The research found that millennial luxury consumers have the highest current average transaction values and were considerably more confident about the future compared to more cautious older consumers, having high disposable incomes, property and little experience of economic recession.

92% of this new generation of collectors are also confidently buying online. This offers significant potential for both the online and the middle market as a means to attract a broader base of new buyers at different price levels, which would be of benefit to the overall health of the market. Furthermore, in light of precautionary measures taken by consumers in response to Covid-19 in China, a UBS Evidence Lab survey conducted in February found that 62% of respondents spent more time than usual on online entertainment with 10% engaging in online shopping on a net basis.

In addition to millennials' response to online channels, another consideration for museums and galleries in relation to this demographic which we have seen over the last few years is an interest in artworks that address the pressing socio-political issues of our day. This aligns to an increasing commitment from this generation to making investment decisions with an impact and a growing concern to be more environmentally conscious in their art buying habits.

To download the full Art Basel and UBS Global Art Market Report 2020, click here.