As a test, please create NAT gateway with subnet set to None. Once it is created, navigate to the NAT Gateway, click on Subnet and see if it shows/allows you to select your Subnet1. If it doesn't work you can go ahead and delete the NAT gateway so you aren't being charged while it is not functioning.
Okay, I thought you stopped and didn't create it because it wouldn't allow you to select your subnet. I was wondering if you went ahead and created it with None for subnet, and then after it is created attempted to select it would it work. Shouldn't make a difference but since it only takes a minute I thought it was worth a try.
On my end I have tried different ways to get it to not show my subnets and it always shows them. Have several different VNets and switched between them and the subnets would show up every time.