From Add subdomains of a custom domain:
If you want to add a subdomain name such as ‘europe.contoso.com’ to your organization, you should first add and verify the root domain, such as contoso.com. The subdomain is automatically verified by Azure AD. To see that the subdomain you added is verified, refresh the domain list in the browser.
If you have already added a contoso.com domain to one Azure AD organization, you can also verify the subdomain europe.contoso.com in a different Azure AD organization. When adding the subdomain, you are prompted to add a TXT record in the DNS hosting provider.
Is your goal to have everything in one Azure AD tenant or two? As stated in the documentation and related Reddit discussion, you can set up a subdomain but you need to verify both the domains in your Azure AD. Tenant.https://www.reddit.com/r/AZURE/comments/gera4d/is_it_possible_to_setup_azure_ad_using_subdomain/
See also: https://learn.microsoft.com/en-us/azure/dns/delegate-subdomain