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Interest in Contemporary Art grew at an unprecedented rate during the first three months of 2008 with records set and broken in every sale. The highest total for a Contemporary auction in Europe was achieved, and headlines and articles scream of multi-million pound prices, impending recession or what the next big thing will be. Beneath the speculation, what is shaping the market and driving sales over the coming year?

It seems simplistic but, with such a finite resource, demand for quality works of art will always be paramount. There is a hunger for masterpieces. The February sales at both Sotheby's and Christie's saw works of the highest calibre by Francis Bacon and Gerhard Richter set figures that would have been unthinkable a few decades ago. Both are collected by an international clientele and firmly established in the same canon as artists such as Andy Warhol.

One of Richter's candle studies sold five years ago at Sotheby's in New York for $3.82 million. Within the space of three weeks this February the record for his work was broken twice, finally settling at £7.97 million; $15.89 million for the iconic work from the same series. The winning bid, from an American buyer, illustrates that over a five-year period, prices for the artist's work have quadrupled.

For the past century Germany has produced some of the most provocative and important works of art in the world. One hundred years that saw great upheaval also saw great creativity and intellectual thought. A path can be drawn from Expressionist works — which performed so well in February's Impressionist and Modern art sales — through Max Ernst to Richter and Polke and the current hugely successful artists such as Andreas Gursky, whose works holds the record for any photograph sold at auction.

The next artist to achieve similar status to Bacon and Richter is Lucio Fontana and the February sales have confirmed his position among the big names. From a figure of £1.3 million five years ago, prices for his works have jumped to make him now one of only two European artists to cross the £10 million threshold — the other being Bacon. The record set in this February sale of £10.32 million; $20.58 million was driven by strong international competition. Eleven bidders propelled this museum quality work — Concetto Spaziale/La Fine di Dio — to a record-breaking price, emphasising the global appeal of works of this stature and the vital importance of quality even for such high profile names.

The quality of work and the position of such top flight artists, allied to booming economies in Russia, Asia and the Middle East, has produced an exponential expansion in the number of bidders and their geographical location. Recent figures produced by Sotheby's record a marked shift in the top end of their clients — those bidding over $500,000. While in 2003 they originated in only 36 countries, they now come from 58, an expansion of 60%. This has naturally been linked to an increased number of buyers — to the order of 200%.

This diversity of demand and geographical reach of collectors not only affects sales of established works but also fosters interest in new artists. The wealth in Asia and Russia and its effects on the contemporary art market in particular has been one of the ongoing stories of the last few years. Collectors in or from those countries are increasingly interested in works by local artists and this is causing certain artists to reach a level of global interest that pushes them into international sales. Chinese artists Zhang Xiaogang and Yue Minjun are two prime examples and are being joined by artists from other areas — Indian artist Subodh Gupta for instance who had offered in both London and in the RED auction in New York recently. Overall six works by Indian artists offered in London this February performed exceptionally.

Although international interest in these areas is unparalleled, price is always an important consideration. The development of the market for Chinese works is an important example. While the majority of Chinese works in the London sale performed well, a couple of notable works failed to sell. Historically Chinese works have been estimated conservatively and smashed these expectations but as the field matures there is an alteration in values to reflect market conditions. This change will be gradual and forthcoming sales in both Hong Kong — including an important single owner collection — and New York will give a further indication of the direction of this rapidly changing area of the market.

In tandem with these international auctions, contemporary sales are also increasingly tailored to appeal to individual markets or to a particular geographical location. Phillips de Pury included a Contemporary Russian Art sale in their roster of February sales this year, and Russian Contemporary art will have its second sale dedicated to the field this March at Sotheby's London. In contrast, Indian and Middle Eastern Contemporary art have already had successful sales.

As with the Impressionist and Modern art sales of two weeks ago, the London sales of Contemporary art underline the importance of Sotheby's established collecting base, who remain as active as ever, joined by a growing range of buyers coming from Russia, Asia and South America. By utilising its reach of expertise and offices, Sotheby's is able to offer unprecedented access to these markets and present the finest examples in these fields. As ever, quality remains vital.

There will be opportunity to witness how the market reacts to quality works throughout the spring, with Contemporary Chinese Art sales in both New York and Hong Kong, a Modern Indian Art auction in New York, and a Russian Contemporary Art sale in London.