And you should know, we look at every deal that anybody does and reads in the papers. Not hard to figure out that if you want to sell something, you call Prologis.So, you know, our feeling is people are still stuck on the old values, and buyers are expecting a substantial discount for those values. I suspect that most of those numbers will move closer together in the next couple of quarters and the market will start transacting.The funds have always been a place where we either take capital out or put capital in, and depending on the cycle of the marketplace. And back even in the global financial crisis, when AMB was much smaller and the balance sheet was weaker, we stepped in and put a couple hundred million dollars in our funds, when I thought — when we thought that the time was right.So we continue to do the same thing.
I don’t think it’s a big deal one way or another, but it’s a great place to buy a high quality real estate that we know and we like. So that’s the way we think about it.Operator And our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.Blaine Heck Great. Thanks. Good morning out there. Can you talk about demand related to near-shoring or on-shoring? Which markets are seeing an outsized impact related to the trend and maybe how Prologis is positioned to benefit from it?Hamid Moghadam Sure. Let me start and then I’ll pitch it over to Chris. The biggest impact is on Northern Mexico. Those markets along the border are literally on fire. There is no vacancy and we’re seeing a lot of near shoring happening there as sort of a diversification move.We’re also seeing some of the China manufacturing bleed out to the rest of Southeast Asia, but we’re not really active in those smaller markets, but we do see that.
And it’s moving west in China and it’s moving to other areas in Southeast Asia. But Mexico is the big story here.The on-shoring part, I mean, honestly, other than what I read in the papers, and the chip business which is real, the rest of it is wishful thinking mostly. So they’re very isolated examples, but you look at the numbers and they are not that significant. Chris, do you want to add to that?Chris Caton Sure. I think that’s really well described. Blaine, I’d say there isn’t great data on this, but that which we see is that it is a building trend in Northern Mexico. So it takes time for those supply chains to relocate instead of the ecosystems they need to really function properly and resiliently. And that is happening and will continue to happen, so I would expect it to grow in the coming years as well.Operator Thank you.
And the next question is from the line of Craig Mailman with Citi. Please proceed with your question.Craig Mailman Thank you. Maybe just a clarification and a follow-up question. Tim, I think in your prepared remarks, you said that the mark-to-market could end this year by 70% and be 85% by the end of next year in the absence of rent growth. So maybe clarify that if I misheard it. And then second question, just as you guys are seeing conditions on the ground, clearly, we saw some of the numbers you guys discussed it normalize here in the first quarter, but could you just talk about maybe how we should think about the cadence or anything incremental, what tenants are saying so that we don’t get surprised the next quarter or two with some of the fundamental numbers here coming through as supply does deliver in some of the markets that have had more in the pipeline, like L.A., Inland Empire, Dallas sort of market.
So then just also, you guys maintained your 10% market rent growth. Has that shifted dramatically within markets where some may have weakened significantly while others have grown? Or is it pretty consistent across the border? I apologize. I know that was a lot at once.Hamid Moghadam Nice try unpacking all that in one question.Tim Arndt I guess I will address all three of those. So I’ll start, Craig, and I’m glad you asked if there was confusion on the point. You’re right that we said we will — we believe we will see a 70% lease mark-to-market of the entire portfolio at the end of this year, after we roll leases over the course of the year and we have some continued rent growth build.What I was trying to highlight there was that, if you just take out the component of that, that is rolling in 2024, to see have a sense of how this rent change is going to endure, that slice of the 70% on its own is 85% without any more market rent growth in the next nine months.
So that just gives you very clear visibility on how the rent change is going to stay high, how it’s going to translate to the same-store growth. So that was the intention there.Hamid R. Moghadam Yeah. Let me take the second part and I’ll pitch it to Chris for the third part of the question. Look, you’ll be surprised if we’re surprised. So — and we really worked hard at not being surprised. And the best indicator of what’s happening is the ongoing leasing and proposals and all that stuff that we’re involved and you guys don’t really see directly other than at the end of the quarter.So I would say — I would describe market conditions as very good to excellent. They are not exceptional like they were a year and a half or two years ago, but they are very good to excellent.
The markets you mentioned LA and Inland Empire, not worried about those at all. I mean, those markets are in the one percentage — one percentage to two percentage vacancy rate.When you get to Dallas and particularly South Dallas and some other markets like Atlanta, way down the South, et cetera, those markets through all the cycles have been prone to over-development and softening of demand when a business was down. So we’re watching those very carefully, but I wouldn’t characterize any of them as watchlist markets now, otherwise, we would have classified them as such.The 10% rental growth is an overall number, but there is a very wide dispersion around that 10%. And Chris, do you want to elaborate on that?Chris Caton Yeah, indeed, there is a wide dispersion.
And we’ve been a customer over the years talking about outperformance on the coast and lower growth and lower barrier markets. Historically, that outperformance has averaged 250 basis points to 500 basis points on — in any given year. This year, that 10% sees more at the lower end of that range, more like 200 basis point, 250 basis point outperformance on the coast versus the lower barrier markets.And so that is where we saw the resilience, and I would also point to other global markets outside the United States. We talked about Mexico on an earlier call. It’s probably one of the hotter parts of the world from a logistics real estate perspective. We’re also seeing resiliency in Toronto and Northern Europe, Germany and the Netherlands.Operator And our next question comes from the line of Derek Johnston with Deutsche Bank.
Please proceed with your question.Derek Johnston Hi, everybody, and good morning. The dislocation between public and private market logistic asset values obviously is weighing on possible M&A. But as Fed policy nears peak rates and currently projects a pause, do you see valuations converging between public and private assets, and secondly, thus a pickup in capital recycling?Hamid Moghadam Yeah. I definitely do see a convergence over time, and private markets are always slow to adjust on the way up and on the way down because it’s all backward looking appraisals and people look for comps. And — but we don’t really view the market that way and we view that disconnect as an opportunity because look, we have a very clear view of what the capital markets tell us in terms of the new cost of capital, and we’re interested in deploying capital at above that new higher number.And private values are not yet there that’s why we see some continued erosion on private values in the next quarter particularly in the United States.
On the other hand, I think the public values are over-discounted and we see those actually picking up as there is more evidence in the private market that the world is not falling off the cliff. So I think you’ll get a conversion from both sides and this is not at all unusual compared to past cycles.I would say every cycle gets a little better, but there is still a pretty significant disconnect. And of course, private values can be, whatever you want them to be if you’re trying again to prove a point or trying to make a statement. So we are actually, our moat with appraisals — appraisers that we work with is to continue to point them to the cost of capital as opposed to comps that don’t exist.So we are on the other side of that argument. We’re trying to get this market to get unlock and to transact and trying to get these appraisers to be realistic about their valuations.
