Economics News Market USA

While the rich get richer…

As the top galleries branch out, the middle tier is being squeezed

This piece by Rirkrit Tiravanija, which was on show with Pilar Corrias gallery at Frieze last year, seems a prescient commentary on the state of the economy

President Barack Obama put the middle class at the heart of his State of the Union address last month. “Corporate profits have skyrocketed to all-time highs, but for more than a decade, wages and incomes have barely budged. It is our generation’s task… to reignite the true engine of America’s economic growth: a rising, thriving middle class,” he said.

Obama may not have had the art market in mind when he said this, but there are growing calls within the art community for a similar focus on its own middle section. While there has been considerable growth at both the top and emerging ends of the trade, the middle has stagnated. Mega-galleries including Gagosian, David Zwirner, Pace and Hauser & Wirth have all expanded internationally, but mid-level galleries including Hotel, Agnew’s, Haunch of Venison and Saamlung have recently closed, and there are fears that more will follow.

The Art Dealers Association of America—which led the efforts to build the $1.2m Superstorm Sandy relief fund—says that much of the help so far has gone to mid-tier dealers hit hard by the disaster, and that more may need to be done to stabilise that market. “The middle range is absolutely vital to the ecology of the art world,” says Linda Blumberg, the association’s executive director.

“It is possible that the bifurcation in the art market reflects a dichotomous growth in the world’s economies,” says Benjamin Mandel, an economist at the Federal Reserve Bank who has been studying the art trade. In the US, for example, incomes grew overall by 1.7% between 2009 and 2011. But the incomes of the richest 1% grew by 11.2%, while the incomes of the remaining 99% declined by 0.4%, according to “Striking it Richer”, a report published in January by the economist Emmanuel Saez.

This has an impact on who buys what. Rising costs and stalling wages for the 99% have led to “an erosion of the more traditional collector base of upper-middle-class professionals who come from academic, medical or accounting backgrounds. They’ve been trumped by a new collecting class from emerging economies, which has proved very capable of dominating and mis-shaping the market,” says Gregor Muir, the executive director of London’s Institute of Contemporary Arts. Another group on the wane is “the hedge-fund group that was spending $150,000 to $200,000 on a painting in 2007. They all got fired, so they’re not buying,” one prominent New York collector says.

Even at auction, where the mid-level day sales sat well alongside the “masterpiece” market this season, the gap between the average prices at the top and in the middle has widened considerably over the past five years.

Part of the problem is that the sector is difficult to define. In terms of material, it could refer to works by mid-career artists or to lesser works by established artists. Price levels are also tricky to ascertain. The Art Newspaper surveyed more than 40 art professionals and found consensus on a range of $30,000 to $500,000. But “there are many middles of the market”, the art adviser Allan Schwartzman says. “At some price levels, it can be $40,000 to $60,000; at others, around $150,000 to $350,000; and at others, in the $2.5m to $5m [range]. There are many plateaus or stall points in the market.” (For some, the sums are higher still. “I’m seeing the middle of the market moving up. Is a $10m, $20m picture considered mid-range now?” asked Larry Gagosian in an interview with the Wall Street Journal last year, demonstrating how big the gap is becoming.)

Risk-taking

The New York gallerist Edward Winkleman argues that the mid-level dealers are the “ones taking the risk”, but says that “they can’t grow into powerhouses because the big galleries poach their best-selling artists before they gain any real power. The galleries in the middle therefore get stuck.”

“We’re now at a tipping point,” says Michael Plummer, the co-founder of Artvest Partners. “The middle-tier galleries are being squeezed by the big guys, who are able to attract capital from outside investors. More and more of them will start to disappear or merge, especially after the effects of [Superstorm] Sandy are fully reckoned with.”

Why does this matter? The middle is “where a very large part of the creative energy of the art community finds an outlet. If all the money goes to mega-galleries committed to trading works expensively produced by a handful of brand-name artists, then the whole scene will die back,” says Robert Storr, the dean of the Yale University School of Art, who warns: “That, alas, is where we are headed.”

The new band of ultra-wealthy collectors who have entered the market are buying “masterpiece” art at the top or works by emerging artists at the bottom: not in the middle. “People are buying the young, hot artists for speculation or the big established names from a certain period. They aren’t focusing on the middle market, even though they could be forming great collections for prices that aren’t exorbitant,” says Brian Washburn, the director of New York’s Joan Washburn gallery, which specialises in middle-market material by 19th- and 20th-century American artists.

Some of the new buyers are “trying to use the market for purely financial gain. As a result, there is a herd mentality driving up certain artists’ prices much faster,” says the London- and Hong Kong-based art dealer Ben Brown. “Fewer people seem to want artists whose prices have not moved, whereas everyone seems to want hot artists, despite the obvious lessons that should have been learned from buying overhyped artists,” he adds.  

The impact could be felt for many years to come: since most museum collections are built through donations, what is being bought now is likely to enter museums in a generation’s time. “Rampant speculation… disproportionately gears attention to works of art that are financially ‘in play’, and disproportionately draws attention—and money—away from works that would normally rise steadily but more slowly in price, based on intrinsic artistic importance,” Storr says. This could lead to worthwhile art being overlooked by the market and “by museums where market fevers now run amok among patrons and curators”.

Museums are “surely the ones that will ultimately have to call the shots in defining what is important—who else is going to do it?” asks Gregor Muir. But, he adds, “they are strangely on the sidelines at the present time”.

But the mid-market at auction soars

While middle-tier private dealers are struggling, the auction houses are breaking records with their mid-market material. Christie’s South Kensington outpost showed an overall sales increase of 20% in 2012. During last month’s London auctions, both Sotheby’s and Christie’s recorded strong results in their day sales; on 7 February, Christie’s had its most successful auction of Impressionist and Modern works in terms of percentage sold by lot (83%), according to a spokesman. “The day sal­es were rocking—I’ve never experienced such buoyancy,” says Alex Branczik, Sotheby’s senior director and senior specialist in contemporary art, who was the auctioneer.

Much of this is to do with the international brand appeal of the auctions houses, which are better able to attract new buyers from emerging economies. “Latin American collectors account for a lot of our business at the moment, particularly in middle-market, classic post-war material by artists such as Calder, Fontana and Manzoni,” Branczik says.

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Comments

11 Apr 13
15:43 CET

CLAUDIA WORTHINGTON HESS, SAN FRANCISCO

Yes- how about articles on art under 25k by middle career artists! A regional survey- Is Santa Fe etc middle market really dead?

22 Mar 13
4:1 CET

MICHAEL BATTAGLIA, LITTLETON

What has happened to the sales of Art under 25K in cities like Santa Fe, Palm Desert, Dallas, etc. The market is dead.

8 Mar 13
16:14 CET

MARIA, MINETA

Continental Europe has an aditional problem: the decline of the national markets. Artist are defined as international or local. Local artist read, German, French, Italian...are now isolated in a growing global market and their markets are the playground for the big international dealers.

7 Mar 13
15:4 CET

ROSE KORBER, CAPE TOWN

Excellent article, clarifies the current situation of the art market

5 Mar 13
16:43 CET

KEVIN ZUCHOWSKI-MORRISON, LONDON

Very well written and informed article. I must say that this seems to be the time of the 'super brand' gallery more than ever. The top galleries are starting to take a global dominance more than ever before. I think their is certainly optimism in the mid market. I see a power shift in the not to near future and this shift will make space for more mid level galleries to fill the gaps. Such rapid growth is not sustainable with top galleries. Every company has its peak. So it's only a matter of time before the power shifts. If we have a another large market dip like 2009. That would certainly knock a number of the top galleries out as they are investing huge amounts on global program's.

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