Collapse of share prices puts artists in demand

The staggering £49.5m paid last month for Rubens' Massacre of the Innocents at Sotheby's in London was only the most extreme demonstration of the enduring popularity of art as an investment when share prices hit the floor.

But one aspect of the art market's current boom has surprised gallery owners and auction houses. While collectors played safe by investing in well-known names during the art market's last bull run at the turn of the 1990s, this time much of the demand is for new artists. According to art experts, a new breed of enthusiasts accustomed to studying the pages of the Financial Times is applying a similar discipline to identifying the next generation of Young British Artists. This is the end of the market, where pictures can be picked up for a few hundred pounds, that the real returns are to be made.

Nicholas Logsdail, who set up the Lisson Gallery in north London 35 years ago, said the currently buoyant market for contemporary art had undoubtedly been helped by ordinary investors shying away from stocks and shares. "People are definitely buying contemporary art as an investment," he said. "Sales are up by 30 per cent over this time last year and have shown a steady rise since September 11. Works for £75,000 to £100,000 are selling well."

Michael Day, who has been in the art business for 25 years and is managing director of Burlington Paintings in central London, said business had improved since last November as small investors who had had their fingers burnt in the stock market sought an alternative haven for their money.

"In the medium to long term holding art has proved to be a very good investment," he said. "There are fairly few good paintings bought 10 years ago that have not done pretty well compared to returns from stock markets in the same period. It is the half-way-up-the-rung picture by the bigger names that have struggled."

Mr Day, who mainly deals in pictures produced between 1840 and 1930, has some advice for newcomers to the market. "Buy the best you can afford – it's quality that counts. If you can't afford a Lucian Freud it is better to go for the very best of an artist further down the scale, rather than a mediocre one by a top name."

Will Ramsay has spent five years making the purchase of contemporary art a possibility for the British public through Will's Art Warehouse in Fulham, west London, and the Affordable Art Fairs in London and Bristol. "When buying work by an unknown artist, people should buy it because they love it and can live with it – not simply because they feel they should be buying it," he said. "Taking advice, trusting your eye and buying a picture by an emerging artist can be a good investment.

"If you discover that it has gone up in value then you can feel a bit smug in years to come." Of course, not only the emerging or relatively unknown artists are benefiting. Christie's and Sotheby's have recently enjoyed hugely successful showpiece sales as art once more becomes a favoured haven for alternative investment. Gerard Goodrow, director of postwar and contemporary art at Christie's, said: "It is safe to say that collectors are shifting funds from the stock market into art because they feel it is a safer investment. "As an added bonus, if young bankers or lawyers collect art it gets them into a social and intellectual circle to which they would not normally have access."

He said artists possibly worth investing in included the new British artist Martin Creed, the American painter Elizabeth Peyton and the German photographer Thomas Demand. But he also warned that prices for works by established young British artists such as Damien Hirst, Rachel Whiteread and Sarah Lucas, which had risen sharply, might now have levelled out.

ARTISTS WHOSE STOCK IS EXPECTED TO RISE

Colin McMaster: Irish artist, aged 22, trained at Central St Martin's School of Art. Won Royal Ulster Academy student prize in 1999. Style: Caricatures based on 1950s adverts and magazines. Price range: £700 to £2,500.

Alicia Dubnyckyj: Aged 20, graduate of Birmingham Institute of Art and Design and University of Central England. Style: Bold, glossy photographic-style cityscapes. Price range: £500 to £1,600.

Alison Pullen: Aged 35, graduate of Norwich School of Art and Royal College of Art. Style: Translucent multidimensional paintings on magazine pages. Price range: £400 to £900.

Dinah Dufton: Aged 35, her work features in the collections of Deutsche Bank and Credit Suisse. Style: portraits using contour lines. Price range: £500 to £3,000.

Peter Monkman: Aged 35, a BP portraits awards finalist. Style: paintings, incorporating doodles, inspired by film and TV, including 'Big Brother'. Price range: £250 to £2,500.