What Drives the Value of Art?

At the London School of Business’ Art Investment Conference, Borro had the opportunity to discover the top factors that drive the value of art. Dr. Ian Robertson gave an amazing presentation on this and we’re excited to share with you what we’ve learned.

1) The yields in stocks and shares
On average, as stocks and shares increase, so does the value of art over time. We can see this in the below graph whereas ‘All Art’ value increased, so did the value in shares of the Financial Times.

Value of Art
Image Source: Ian Robertson Presentation

 2) Comparative Investments

If the price growth of other assets is higher than art, then this will drive the value of art down as some investors will prefer to place their finances in other sectors. Other asset classes will have some form of impact over the art asset class. For example, property and art can go hand in hand as we need great properties to display great art! On the flip side, if the price growth of art is booming, then the value of art will go up as more people invest.

Value of Art
Image Source: Financial Times

3) Economic and Political Volatility

What is happening in the world of politics affects the perceptions of potential investors and thus drives the value of art down. For example, ever since the wave of protests and civil wars that arose in the Middle East in 2010, the value of Arabic Modern Art rapidly declined as the market was sensitive to politics.

Value of Art
Image Source: ArtTactic

Also, varying interest rates and inflation have effects on the value of art as high inflation/interest means less people can afford to invest. Furthermore, changes in exchange rates may mean overseas buyers can obtain art at a lower rate. For example, when Brexit was announced the pound dropped against the Chinese Yuan so significantly that Chinese art investors flocked to London to buy their art at a much lower price.

4) Taste

Taste and fashion are things that are always varying. What’s exciting in the art world one year, may be sharply replaced the next. The most classic case of this would be Van Gogh. When he created his art it was almost worthless, and now his paintings are amongst some of the most valuable in the world, such as this portrait of Dr. Gachet, worth $138 million.

Value of Art
Image Source: colorpaintingart.com

5) Rarity and Beauty

It’s quite obvious that beauty would affect the value of art as you wouldn’t pay more for something that you find unattractive. But it is important to remember that beauty is very subjective, which is why rarity always trumps beauty. If you chipped an extremely rare vase, its value would only be slightly affected, but if you chipped a beautiful vase that wasn’t rare, it’s value would be more significantly affected as its looks have been damaged.

6) The Art Market Mechanism

There are several factors about the art itself that affects its value, often determined by museums, scholars and experts. These include authentication, condition, historical importance, past prices, size, material, colour, subject-matter and provenance. All these factors would be considered by a collector when choosing to invest in art, for example, an authentic piece that is in great condition and made of lasting materials that has strong historical importance is clearly going to have more value than a piece that doesn’t.

We hope this article helps you with what value-factors to consider when investing in art. The art investment world is both complex and exciting, remember to enjoy it!

Related Blogs:
How to Develop an Art Portfolio in Three Steps
The Art Business Today: Key Market Concerns
Using Art Insurance to Avoid Value Disruption

About the Author:

Maryke wrote about luxury asset trends for Borro Private Finance.