Although New York has dominated overall turnover since WWII, when it comes to market performance, London is putting the Big Apple to shame.

Total sales in the London auction market have risen an astronomical 93 percent since mid-2001, compared to a mere 46 percent in New York over the same period.

"The market in England for contemporary visual art has undergone a dramatic expansion over the last decade," says Art Newspaper scribe Louisa Buck, author of Market Matters. "London is now the center of Europe’s art market, and is acknowledged as the second largest art marketplace in the world after New York."

"Our post-war and modern sales in London went from £9 million to over £30 million over the past three years," says Catherine Burton of Christie’s London. "We’re averaging 20–30 new clients in every sale, people we haven’t seen before." The good news is that over two-thirds of these clients are either U.K.-based or European.

But times weren’t always so good.

London was considered a parochial cultural backwater a mere 20 years ago. Contemporary sales at auctions, galleries and art fairs were almost nonexistent.

Several major factors have transformed the playing field: collector Charles Saatchi, the Frieze Art Fair and the emergence of the East End as a breeding ground for new galleries and talent.

Saatchi and his eponymous gallery have given London the reputation as an indisputable centre for showing emerging contemporary art. He was the force behind Young British Artists like upstart Damien Hirst, now one of the top grossing artists alive.

The Frieze Art Fair has given the once provincial city an international flair. "Galleries exhibiting at London art fairs before Frieze used to complain that you never heard a foreign accent," says Turner Prize-winner Grayson Perry.

About to open in London’s Regent Park for its third year, the Frieze Art Fair has impacted the UK market enormously, drawing masses of top international collectors, with open checkbooks, to London.

"The Frieze fair is the single most important thing to happen in contemporary arts in London since the opening of the Tate Modern," says Glen Scott Wright of the Victoria Miro gallery.

At last year’s Frieze, over 40,000 people came to see 150 top galleries from around the world. There was an estimated £26 million worth of sales.

"It’s a collector's fair rather than a dealer's fair," says Nicholas Logsdail, director of the Lisson Gallery. "The best of what you’ll see at Frieze, you’ll see two or three years later at the Tate Modern."

The effect on local galleries has been dramatic. Maureen Paley was one of the first to open a gallery in the East End in 1984. Many have followed. Over 50 new galleries have opened in the last three years. "When I opened my gallery in London in the mid-1980s," says Paley, now one of London’s top dealers, "I was lucky to sell 15 percent in the U.K. But I currently sell more like 70 percent in London alone!"

Paley believes London has the potential to become what Paris was at the turn of 19th century. "It has one eye towards Europe and the Far East and the other towards America."

The auction houses have been quick to react to London’s contemporary art market boom. Confirming the buoyancy of the market and the gravitational pull of Frieze, Bonhams, Christie’s and Sotheby’s have organized contemporary auctions to be held at the same time as the fair, during Oct. 21–24, 2005.

Top pieces by sought-after names such as Andreas Gursky, Richard Prince and Jean-Michel Basquiat, lots that were typically sold in New York, are now going on the block in London. Judging from the quality of the lots, expect four days of frenzied buying.

Is there any end to London’s ascendancy within the art market? It’s not likely.

A change in British law, going into effect in 2006, allows people to transfer works of art they own into their personal pension plans. Art investment firms, such as the U.K.-based Fine Art Fund, a registered U.S. partnership managed in the U.K., are scrambling to corner this potentially enormous market.

With financial objectivity fast replacing the anecdotal concerns of art, major U.K. banks and pension funds are gearing up to invest between one percent and three percent of their value in artworks as a hedging measure.

Sources within the industry claim this could inject and estimated £5 billion pounds into the U.K. market over next three years, making London the epicenter of a new age, for better or worse, when art becomes an asset class.

JOE LA PLACA is Artnet’s London representative.