You don't set the trailing elements of new_hash to spaces on each iteration, or clear new_hash each iteration, so those trailing hash marks remain. What if you do this:
for row=1:m
clear new_hash
:
etc
If you are running this as a script, you will want to do this also each iteration:
clear space
Alternatively, you could set these variables directly within your loop and then not have to worry about clearing them each iteration. E.g.,
space = repmat(' ',1,row);
new_hash = repmat('#',1,n-2*row);
