Investment bank Morgan Stanley will move 2,300 employees into lower Manhattan office tower One New York Plaza. That’s a significant increase for the firm, which employed only 400 workers in lower Manhattan as of early June.

The southern migration will also boost lower Manhattan’s office district, which according to Manhattan-based brokerage Studley Inc., was 12% vacant in early June. Meanwhile, vacancy at One New York Plaza—a 50-story, 2.5 million sq. ft. office tower owned by Chicago-based REIT Trizec Properties—should drop from its current level of 13%.

Morgan Stanley was one of the World Trade Center’s largest office tenants with 1,300 brokers located on 50 floors of the South Tower (Two World Trade Center). But after 9/11, the investment bank moved the bulk of its operations north into midtown and Westchester County.

In return for the move, Morgan Stanley will receive as much as $16 million worth of federally funded grant money. Some $11 million of that will be paid directly to the investment bank. Morgan Stanley will receive the balance of that sum provided it expands its downtown staff by 578 people before 2009. The firm has leased 648,000 sq. ft. of office space within One New York Plaza. The office tower is located on the southernmost tip of Manhattan. The symbolism of Morgan Stanley’s commitment should also benefit the lower Manhattan office market, which is struggling to lure large tenants.

“This is a real shot in the arm for the downtown market,” says Howard Nottingham, executive managing director at Studley Inc. Still, says Nottingham, many other issues could prolong an immediate office recovery downtown. He cites Goldman Sachs’ recent decision not to build a 1.3 million sq. ft. office tower at Site 26 (across from Ground Zero) and the imminent arrival of Larry Silverstein’s empty 7 World Trade Center as two concerns. Goldman Sachs, incidentally, leases 509,145 sq. ft. of office space within One New York Plaza.

Adds Nottingham: “I don’t see office vacancy eroding that quickly, and everyone is watching what happens with 7 World Trade Center and Goldman Sachs.”