Art Market Dip Last Year Reflects Lack of Supply, Not Demand

The global market for art may have been softer last year against a more volatile economic backdrop, but trends detailed within the latest annual report from Art Basel and UBS released earlier this week continue to show collectors are willing to buy.

Scanning a chart within the report of sales since 2009 reveals an ebb-and-flow in the overall market, but surprising consistency in the value of transactions and an uptick in volume.

The year-to-year differences, such as the 4% dip in market value to US$65 billion last year, are mostly driven by the number and outcome of big-ticket sales, which declined across auction houses and galleries in 2023.

How many high-value works of art come to market in a given year, however, often has less to do with buying interest from collectors during shaky economic conditions and more to do with the willingness of sellers to part with paintings or sculptures during a time of perceived weakness, according to Matthew Newton, art advisory specialist at UBS Family Office Solutions in New York.

“I don’t think we see an unwillingness to buy those works when they do come to market,” Newton says.

When the economy is weak, estates with less discretion over timing often are the main consignors of expensive art. For example, last fall in New York, Sotheby’s sold works owned by Emily Fisher Landau , a long-time patron who amassed a collection bursting with masterpieces that hadn’t appeared at an auction before.

Sotheby’s single-owner auction of the Fisher Landau collection led to the US$139.4 million sale of Pablo Picasso’s Femme à la montre (the second highest price for a Picasso work at auction); the US$41 million sale of Jasper Johns’ Flags ; and the record US$18.7 million sale of Agenes Martin’s Grey Stone II —prices that were within or exceeded expectations.

“People are still willing to make trophy purchases,” Newton says. “I don’t think there’s a lack of demand, it’s about a lack of supply.”

Rising interest rates since 2022 arguably could be another factor in slower high-end sales, since wealthy individuals finance about 29% of their art collections, on average, while the ultra-wealthy (those with a net worth above US$50 million) finance as much as 39%, according to a separate report on global collecting trends published late last year from Art Basel and UBS.

But Newton doesn’t believe higher rates played a significant role in the art market last year. The wealthy typically borrow money for business or investment opportunities; if they have a US$500 million art collection on their walls, borrowing against it can be a good source of liquidity. Any impact it has on the market would be “within the margin of error,” Newton says.

Another chart in the report tracks sales growth from 2009 through 2023 in five segments of the auction market, from works sold below US$50,000 to those achieving US$10 million or more. The results show the performance of most works of art that are sold—that is, those that fall below the US$10 million level—has been “relatively flat over a decade plus,” Newton says. “It’s really those works that are over US$10 million … that’s where we see growth in the art market.”

At auction, the US$10 million-plus segment fell a substantial 25% in 2023 from the previous year, but overall, the sales trend for those ultra-expensive paintings since 2009 has been on an upward trajectory. That’s no accident, considering the population of billionaires who fuel those sales has also continued to rise, with their wealth doubling over the last 10 years to about US$13.1 billion, according to the report.

“It’s a relatively very small group of people who can spend over US$10 million on artwork,” Newton says. Of those who can afford to, not everyone does, meaning a few individuals can alter total sales for the whole market.

In part, that’s because global art sales are relatively small even at US$65 billion. Consider the global private-equity market—another place where the wealthiest individuals place their money—was estimated to reach US$16.3 trillion last year, according to London data firm Preqin.

“$65 billion … that’s obviously a lot of money,” he says. “On the other hand, that’s the entire art market—it’s like less than half the net worth of a few individuals.”

Newton says he often reminds clients that not that much art that exists in the world is sold. “What is traded is a very, very small percentage of the work that’s out there.”

For years, global companies showcased their Chinese operations as a source of robust growth. A burgeoning middle class, a stream of people moving to cities, and the creation of new services to cater to them—along with the promise of the further opening of the world’s second-largest economy—drew companies eager to tap into the action.

Then Covid hit, isolating China from much of the world. Chinese leader Xi Jinping tightened control of the economy, and U.S.-China relations hit a nadir. After decades of rapid growth, China’s economy is stuck in a rut, with increasing concerns about what will drive the next phase of its growth.

Though Chinese officials have acknowledged the sputtering economy, they have been reluctant to take more than incremental steps to reverse the trend. Making matters worse, government crackdowns on internet companies and measures to burst the country’s property bubble left households and businesses scarred.

Lowered Expectations

Now, multinational companies are taking a hard look at their Chinese operations and tempering their outlooks. Marriott International narrowed its global revenue per available room growth rate to 3% to 4%, citing continued weakness in China and expectations that demand could weaken further in the third quarter. Paris-based Kering , home to brands Gucci and Saint Laurent, posted a 22% decline in sales in the Asia-Pacific region, excluding Japan, in the first half amid weaker demand in Greater China, which includes Hong Kong and Macau.

Pricing pressure and deflation were common themes in quarterly results. Starbucks , which helped build a coffee culture in China over the past 25 years, described it as one of its most notable international challenges as it posted a 14% decline in sales from that business. As Chinese consumers reconsidered whether to spend money on Starbucks lattes, competitors such as Luckin Coffee increased pressure on the Seattle company. Starbucks executives said in their quarterly earnings call that “unprecedented store expansion” by rivals and a price war hurt profits and caused “significant disruptions” to the operating environment.

Executive anxiety extends beyond consumer companies. Elevator maker Otis Worldwide saw new-equipment orders in China fall by double digits in the second quarter, forcing it to cut its outlook for growth out of Asia. CEO Judy Marks told analysts on a quarterly earnings call that prices in China were down roughly 10% year over year, and she doesn’t see the pricing pressure abating. The company is turning to productivity improvements and cost cutting to blunt the hit.

Add in the uncertainty created by deteriorating U.S.-China relations, and many investors are steering clear. The iShares MSCI China exchange-traded fund has lost half its value since March 2021. Recovery attempts have been short-lived. undefined undefined And now some of those concerns are creeping into the U.S. market. “A decade ago China exposure [for a global company] was a way to add revenue growth to our portfolio,” says Margaret Vitrano, co-manager of large-cap growth strategies at ClearBridge Investments in New York. Today, she notes, “we now want to manage the risk of the China exposure.”

Vitrano expects improvement in 2025, but cautions it will be slow. Uncertainty over who will win the U.S. presidential election and the prospect of higher tariffs pose additional risks for global companies.

Behind the Malaise

For now, China is inching along at roughly 5% economic growth—down from a peak of 14% in 2007 and an average of about 8% in the 10 years before the pandemic. Chinese consumers hit by job losses and continued declines in property values are rethinking spending habits. Businesses worried about policy uncertainty are reluctant to invest and hire.

The trouble goes beyond frugal consumers. Xi is changing the economy’s growth model, relying less on the infrastructure and real estate market that fueled earlier growth. That means investing aggressively in manufacturing and exports as China looks to become more self-reliant and guard against geopolitical tensions.

The shift is hurting western multinationals, with deflationary forces amid burgeoning production capacity. “We have seen the investment community mark down expectations for these companies because they will have to change tack with lower-cost products and services,” says Joseph Quinlan, head of market strategy for the chief investment office at Merrill and Bank of America Private Bank.

Another challenge for multinationals outside of China is stiffened competition as Chinese companies innovate and expand—often with the backing of the government. Local rivals are upping the ante across sectors by building on their knowledge of local consumer preferences and the ability to produce higher-quality products.

Some global multinationals are having a hard time keeping up with homegrown innovation. Auto makers including General Motors have seen sales tumble and struggled to turn profitable as Chinese car shoppers increasingly opt for electric vehicles from BYD or NIO that are similar in price to internal-combustion-engine cars from foreign auto makers.

“China’s electric-vehicle makers have by leaps and bounds surpassed the capabilities of foreign brands who have a tie to the profit pool of internal combustible engines that they don’t want to disrupt,” says Christine Phillpotts, a fund manager for Ariel Investments’ emerging markets strategies.

Chinese companies are often faster than global rivals to market with new products or tweaks. “The cycle can be half of what it is for a global multinational with subsidiaries that need to check with headquarters, do an analysis, and then refresh,” Phillpotts says.

For many companies and investors, next year remains a question mark. Ashland CEO Guillermo Novo said in an August call with analysts that the chemical company was seeing a “big change” in China, with activity slowing and competition on pricing becoming more aggressive. The company, he said, was still trying to grasp the repercussions as it has created uncertainty in its 2025 outlook.

Sticking Around

Few companies are giving up. Executives at big global consumer and retail companies show no signs of reducing investment, with most still describing China as a long-term growth market, says Dana Telsey, CEO of Telsey Advisory Group.

Starbucks executives described the long-term opportunity as “significant,” with higher growth and margin opportunities in the future as China’s population continues to move from rural to suburban areas. But they also noted that their approach is evolving and they are in the early stages of exploring strategic partnerships.

Walmart sold its stake in August in Chinese e-commerce giant JD.com for $3.6 billion after an eight-year noncompete agreement expired. Analysts expect it to pump the money into its own Sam’s Club and Walmart China operation, which have benefited from the trend toward trading down in China.

“The story isn’t over for the global companies,” Phillpotts says. “It just means the effort and investment will be greater to compete.”

Corrections & Amplifications

Joseph Quinlan is head of market strategy for the chief investment office at Merrill and Bank of America Private Bank. An earlier version of this article incorrectly used his old title.

Art Market Dip Last Year Reflects Lack of Supply, Not Demand

Multinationals like Starbucks and Marriott are taking a hard look at their Chinese operations—and tempering their outlooks.

Lowered Expectations

Behind the Malaise

Sticking Around