Unable to create a connected SharePoint site

Paul_Mather thank you for responding! We found out that the subsite creation settings in SharePoint tenant settings where set to "Subsite creation is disabled for all sites". It occurred to me to check that only later as creating a new project did create a site without any issues. We have to request the SharePoint admins to address that.

To answer your questions Paul, yes it is a manual migration and there are 3 EPTs, so its custom and they all are set to automatically create a site on next publish. If you don't mind Paul, can you help me understand why it was ok to create a new project with a project site inspite of the SP setting for subsites being disabled? Thank you for your time!