Will it exist? I don’t know. I’m not clairvoyant. But so far, it doesn’t appear that customers are giving back material amounts of space or anything like that. It’s totally within the normal band of how our business works across the cycle.Operator And the next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.Michael Goldsmith Good afternoon. Thanks a lot for taking my question. My question is on your view for the balance of the year and what has changed, if anything, on a qualitative and quantitative basis? So you provided some commentary on your cautious outlook on demand and that wasn’t new, but at the same time, you took up the same-store NOI guidance, maintained your rent forecasts. Just trying to understand if there’s been an evolution in your thinking on how the rest of the year plays out?
Thanks.Tim Arndt Hey, Michael, it’s Tim. Now, look, I think you heard our comments correctly and I like that you pointed out, they’re relatively unchanged. The same-store move is largely a function of an occupancy move. We just retained a decent amount of occupancy in the first quarter. We think that’s going to extend throughout the year, so that’s two-thirds of our increase in our same-store guide. The remainder of it is frankly some outperformance in the first quarter, that’s more one time in nature, deals with seasonal expenses. We had very little bad debt in the quarter, out of interest, but we don’t forecast that to continue. So that’s some of the one-time items, but that combination is what is impacting same-store from here.Operator And the next question comes from the line of Nick Thillman with Robert W.
Baird. Please proceed with your question.Nick Thillman Hey, good morning. Retention remains pretty elevated here, but at 80%. But maybe on the tenants that don’t resign, what’s like their primary reason for not resigning? Is it them outgrowing their current footprint or a case of them just getting priced out of the market? Trying to tie that really to your occupancy in the sub 100,000 square foot area, it’s been a little bit lighter than the rest of the leasing categories.Hamid Moghadam So the reason for non-renewal are either good reasons or bad reasons. The bad reason is that the company goes broke or the company — so the neutral reasons are the company decides to go somewhere else out of one market into another market. The bad reasons are, sorry, the good reasons are that we just don’t have a space that fits the growing need of that customer to be accommodated or the shrinking need of that customer to be accommodated.So they have to go somewhere else.
We do track the reason for non-renewal of every single lease that doesn’t renew. And one of the things that we track very closely is that we lose the space to a competitor because of pricing. And that statistic is like in the 2%, 3%, 4% range, and I think it’s too low because it means that we’re not pushing rents hard enough.So it’s — we’re not losing tenants because of rent. We’re losing tenants because we just can’t accommodate them or they go broke or they move somewhere else. And those have been the reasons for the last 40 years I’ve been doing this.Operator And the next question comes from the line of Camille Bonnel with Bank of America. Please proceed with your question.Camille Bonnel Hello. Following up on an earlier comment about the vacancy in Southern California region being below 2%.
I think the growing concern is actually on the availability rate or how much sublease activity has picked up which is something we really haven’t seen in the past. So I understand, at least within the Southern California region, the supply seems manageable given how difficult it is to build in this market, but could you share your thoughts on how you think this might evolve in upcoming months? And whether or not this is a potential risk you’re tracking closely?Chris Caton So two ways to approach that. First, I’ll give you the — this is Chris, by the way, Camille. First is the sublease data, and the second is our true months of supply data. So sublease nationally in the United States is on an availability rate basis, 60 basis points in the first quarter.
The 10-year average, 60 basis points. The recent low indeed was 40 basis points, so it’s moved up 20 basis points.Now the pre-COVID average or the pre-COVID low was 50 basis points and the peak in the global financial crisis was 1.1%. If you just summarize all that, first off, I’d offer that it’s not a lot of availability. And the second is we’re at the low end or at a normal level in sublease.And then I’d also point you to our views on true months of supply that Tim described in our earnings transcript, which said that at 30 months today, we have a very good market environment, consistent with 10% market rent growth. And as supply decelerates and slows, we think that will go back down into the 20s, improving the market landscape.Operator And the next question comes from the line of Ronald Kamdem with Morgan Stanley.
Please proceed with your question.Ronald Kamdem Hey, great. Just one quick one and so on the expected vacancy rate, you talked about 3.5 currently rising throughout the year and then going back down by the end of ’24. I was just wondering if you could provide a little bit more color on the supply and the demand assumptions that are going into that? How much is sort of demand normalizing, how much supply normalizing to get back to that 3.5. And the corollary to that would be, if you’re expecting 10% market rent growth this year, historically, if you find yourself at that vacancy level at the end of ’24, what sort of the market rent growth experience that we should have? And then the other quick one, sorry, on the 85% mark-to-market GAAP mark-to-market for ’24, can you talk about what that number is for ’23?
Thanks.Chris Caton Thanks for the question, Ronald. So thank you for the opportunity to clarify our market statistics. I want to be very clear. So let’s talk about net absorption in the 30 markets where Prologis operates in the United States. Last year, net absorption was 375 million square feet. We call that at 275 this year, and we expect a similar or perhaps higher numbers of macro environment clarifies and some of the decisions that get delayed this year land into ’24.So that will be on the demand side completions. We have a bit of a clearer view as we look out to ’24. So but starting with 2022, 375 million square feet of supply as well, that’s deliveries. We expect 445 million square feet of deliveries this year as a supply pipeline empties and that will fall sharply, perhaps by half or more into 2024.
And so when you put these numbers together, you’ll see the vacancy rising from low 3s last year to 4 or a bit higher later this year and then back into the mid-3s.Hamid Moghadam The way to think about it is that demand is normalized from exceptionally high levels and the supply response has been in excess of that normalization of demand because of banking crisis and sort of macro constraints. So I think the supply response has been much more dramatic than the effects on demand. And that’s why the market is going to tighten up again. Of course, absence, a calamity or something like that.Tim Arndt One important point to keep in mind is what is a normal vacancy rate because we have been years away from a normal vacancy rate. The historical range for our business is 5% to 10% with pricing power occurring in the 6% to 7% market vacancy rate.
