Since Eugene Famaís seminal contribution in 1970 it is a hotly debated question whether and in how far financial markets are information efficient and what lessons should be drawn for investment strategies. By now it seems established that capital market efficiency in its strong form does not hold. The weak and half strong form of information efficiency, however, is rarely questioned anymore. While it is also established that currency markets are the most efficient, real estate markets are said to be less efficient. We discuss the reasons for the low level of information efficiency on real estate markets. Using GDP and CPI expectations from Consensus Economics Surveys we are able to decompose fundamental determinants of rental growth in expected and unexpected parts. Using standard economic techniques we find that both components add to the explanation of rental growth in a sample of European countries. Furthermore, for some countries it can be shown that lagged GDP and CPI surprises are significant determinants of rental growth. Our results conflict with the assumption of information efficiency on real estate markets in its strong and half strong version.
