So we’re talking about 3.5% to 4% market vacancies, half of what is typically seen as a way to see pricing power.Chris Caton And I would just pile on your third question there on the ’24 component of our lease mark-to-market. This year, the same metric is in the low 80s. I think I intimated that last quarter on the call, just as a measure of what we expected our rent change would be this year. Those are — I’m really talking about the same thing in that context. So roughly in the low 80s for ’23.Operator And our next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question.Michael Mueller Hi. I dropped for a minute, so I apologize if this was asked. Can you talk about like the full year development start yield expectation is compared to the high 7% plus yield that you had in the first quarter.Dan Letter Yes.
Hi, Mike. This is Dan. The yield that you saw in the first quarter was a couple of build-to-suits, really small volume. And what I would say is I would just look to last year and doing better than last year’s yield on our starts this year.Hamid Moghadam I think the vast majority of the starts are in the 6s. And I would say the cap rates are up 75 basis points. So margins have gone from 30%, 40% to 20%, 30% something like that. I mean, those are some rough numbers.Operator And the next question comes from the line of Tom Catherwood with BTIG. Please proceed with your question.Thomas Catherwood Thanks. Good morning, everyone. I want to touch on tenant health for a bit. Obviously, we talked about higher cost of capital and less availability of debt when it comes to real estate but it’s also impacting operating industries across the board.
With your expectation of slower economic activity this year, are there any industries where you would be concerned about increasing your exposure at this point in time.Hamid Moghadam Let’s talk about credit loss as a measure of customer stability. Bad debt ratio and all that. It’s historically, in our business has been in the tens of basis points. Even when you had the lapse in demand in the immediate aftermath of COVID that number got to 60 basis points. So — and Chris, what would you guess our number is going to get to in the cycle when it’s all over in terms of bad debt.Chris Caton I’d say 20, I’m jumping in here. I think 20 will be on average.Hamid Moghadam Yes. So I mean, we don’t see it in the numbers and the number of bankruptcies, et cetera, et cetera, that we’re monitoring and working on are really not unusual in fact, I would say, that’s somewhat unusual.
I was expecting more of them than we’re seeing in this point in the cycle. And honestly, we would like to see more of them because, frankly, there’s so much mark-to-market in those leases that those kinds of tenant departures are actually an upside.So if anybody sort of has problems with their business or is looking to downsize. We look at that as an opportunity to do a buyout and actually be able to extract higher rents in the marketplace. So really not a concern. And that number — those numbers that I talked about are out there. You can go look at them and plot the curve. They’ve been coming down substantially as opposed to from very low levels, but they’re still coming down.Tim Arndt I might add on to that one final thought, which is I think the 20 that I’m throwing out is a reflection of some mix shift on credit, I think, in the last five years with the markets this tight, we’ve not only been able to push rents, keep the portfolio occupied, but we’ve been greatly enhancing the credit profile of our rent roll, and we think we’ve got a really strong customer base.Hamid Moghadam Yes.
One final statistic that you guys don’t have visibility to, but I’m reading off my sheet of stats here. Historical average of credit watch tenants for us, long-term historical average has been 4.9%. We just watch them.By the way, the average actual default has been 0.15. So we worry about a lot more things than we should. That credit watch number today is at 3.35. So it’s down substantially. And so is the actual bad debt ratio. So we worry about a lot of things, but most of them don’t actually happen and the numbers are actually quite healthy, not just — not even adjusting for the cycle and the fact that it’s a softening cycle, but just even in the best of markets, these statistics would show up as very good.Operator And the next question comes from the line of Todd Thomas with KeyBanc.
Please proceed.Todd Thomas Hi. Thanks. I wanted to follow up on the demand environment and your comments about a more challenging macro in relation to the development starts. I guess, how much visibility do you actually have on starts in the second half of the year as it pertains to the full year target of $2.5 billion to $3 billion? How quickly can that ramp up? And then development yields for what’s under construction, they were higher by 20 basis points versus last quarter on the ’23 and ’24 under construction pipeline. Is that due to improved economics around rents or moderating construction costs which I think you mentioned or really a combination of the two? And do you expect to see further improvements in development yields as you look out in the future?Hamid Moghadam Yes.
Most of our land is entitled and entitlement is a pretty broad definition. I mean, fully entitled means that you pulled the building permit on this specific building that you can start but you might have entitlements and you haven’t pulled the specific building permit because you don’t exactly know how big a building you’re going to build or in what configuration.But 80% of our land is entitled in terms of discretionary entitlements and about 20% to 30% of our land is really good to go with building permits pulled. So that is not a limiter on our ability to start development. So we can start whatever development we want to as we monitor the marketplace.The reason for development yields going on — going up is that rent growth has been higher than we forecast.
And the costs are essentially the same because we’ve locked in some of those construction values on the buildings that are starting today. The comment about construction cost has nothing to do with what you’re seeing on the starts today. It will affect yield on starts down the road.Our view has changed. That’s one area where our view has changed materially. We thought there would be some softening of construction costs to the tune of 5% to 10% and because of IRA and all this new fiscal stimulus going into the construction industry, I mean, it uses the same labor, same materials and everything.Contractors still have pretty good pricing power. So that — what we thought was going to be a 5% to 10% decline, it’s going to be inflationary increase.
So the swing is actually pretty material. Having said all of that, the rental growth more than makes up for it. So I think our yields are trending up.Operator And the next question comes from the line of Anthony Powell with Barclays. Please proceed.Anthony Powell Hi. Good morning. Quick one for me, I guess, any change in the tenor of conversations with your lending partners or underwriters after the SIVB collapse? Or are you seeing just increased confidence from your partners that you seek to do financing in the future?Hamid Moghadam They’re asking us a lot of money. No, it’s not really. I mean where that balance sheet is bulletproof. I mean, frankly, we have better balance sheet than most of our banks. So no and we’re not really a bank borrower per se, we tap into the capital markets all the time.Operator And the next question comes from the line of Michael Carroll with RBC.
Please proceed.Michael Carroll Yeah, thanks. I just wanted to follow up on your planner potential willingness to invest into the property funds. And can you quantify how much you would like? Or are you willing to invest in those funds? And are there any particular ones that you would want to invest in like USLF or PELF or is that still a TBD right now?Hamid Moghadam Well, we’re going to invest in PELF sooner than USLF because we think the value adjustments in Europe have been quicker than they have been in the U.S. But I suspect we’re only a quarter or so away from even the U.S. adjusting to a normalized value at least we hope.So look, it’s a $140 billion balance sheet. So even if we just wanted to allocate 1% of it, and I’m not saying we’re going to allocate 1%.
