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The ultimate luxury good now costs at least US$10 million

LAST year's US$28.8 million sale of Peter Doig's Rosedale - a stunning 1991 painting of a house obscured by wintry trees - set a record for the most expensive work by a living British artist. But while it cemented the Scotsman's place among the greats of his trade, the broader UK art market is having a more difficult time maintaining its privileged position.

Yes, UK art sales increased by 8 per cent to US$12.9 billion in 2017, boosted by the pound's weakness, according to art economist Clare McAndrew's latest state-of-the-industry report for Art Basel and UBS Group AG. But its rebound after a couple of years in the doldrums was less impressive than that of the US (up 16 per cent to US$26.6 billion) and China (14 per cent higher at US$13.2 billion). While sterling's decline after the Brexit vote enticed international bargain-hunters to London's showrooms, it also depressed the value of British sales in dollar terms.

China inched ahead of the UK again on market share, accounting for 21 per cent of sales compared to Britain's 20 per cent. The US had 42 per cent. A decade ago, the Brits had one-third of the pie. China's recovery comes after a few years of people paying lip service to its anti-extravagance campaign. Prices are being pushed up by a stronger economy and restored confidence among lavish spenders.

In Britain, meanwhile, the market is still weighing Brexit's long-term impact. Sterling has recovered to slightly more normal levels, but there are other areas of concern. Official figures from the UK tax authorities suggest that the art trade with Europe is of limited importance to London, with just 16 per cent of arts and antiques imports by value coming from the EU, and slightly less than 3 per cent going the other way. However, as McAndrew points out, auction houses estimate trade with Europe is far higher: with consignments from EU member states accounting for up to a quarter of their UK sales and up to 20 per cent of exports.

So while this isn't quite the car or drugs sector, Brexit matters more than you might think. And, like banking, there are other cities (Paris at the forefront) that would no doubt like to chip away at London's historic dominance of Europe's art trade.

Superstar phenomenon

The international backdrop for the art market isn't entirely reassuring either. While global sales bounced back by 12 per cent to US$63.7 billion, an unhealthily large part of this was driven by the "superstar phenomenon" of people splurging on US$10 million-plus pieces by big-name artists. Leonardo da Vinci's US$450 million Salvator Mundi was the standout, while Jean-Michel Basquiat's Untitled, 1982 went for US$110 million and Qi Baishi's Twelve Landscape Screens sold for US$141 million in Beijing.

Individual works valued at more than US$10 million made up 16 per cent of art sales in 2007. Last year, it was more than one-third. With the ranks of the world's super-wealthy expanding at a rapid clip (except in Britain), this superstar mania won't be going away.  For the largest auction houses and galleries, that's less of a problem. But most of the art industry's employment and ancillary spending is found below the top tier. McAndrew estimates that the art market employs about 3 million people worldwide, and spends about US$19.6 billion a year on services.

In the UK, the industry supports more than 130,000 jobs directly and indirectly and more than 7,500 businesses, according to the British Art Market Federation. That's a serious part of the economy.

With many of the mega-sales being conducted in New York, Beijing and Shanghai, the market's lack of balance is of particular concern to London. Even Doig's piece was sold in Manhattan. Brexit just adds to the anxiety. BLOOMBERG