Goldman Sachs Group Inc. paid $40 million to end its lease early at 10 Hanover Sq. in lower Manhattan, as job cuts left the third-largest securities firm with a surplus of office space.

Goldman will move out of the 532,000 square-foot, 22-story tower located five blocks from the New York Stock Exchange by September 2004, said Peter Rose, a company spokesman. With demand for office space downtown low, the owner said he plans to convert the building to rental apartments.

Job cuts and retirements have left Goldman with more than 1 million square feet of unused office space in lower Manhattan, its home for 133 years, said Myers Mermel, chief executive of TenantWise Inc., a real estate leasing and market research firm.

Rose declined to confirm Mermel's estimate. Offices below Canal Street are 15.2 percent vacant, the most in five years.

The firm's work force has shrunk 15 percent since 2001, Rose said. As of November, Goldman had 19,739 employees. Goldman's headquarters is at 85 Broad St., about three blocks south of 10 Hanover. Goldman has surplus office space at 77 Water St., One Liberty Plaza and 180 Maiden Lane as well, Mermel said.

The $40 million payment was part of the $97 million of costs Goldman said last week were related to cuts in the firm's global office space when it reported its fiscal first quarter results.

Goldman uses all of 10 Hanover for a variety of operational functions, Rose said. No decisions have been made regarding where the less than 1,000 employees will be moved.

The owner of 10 Hanover, Steven Witkoff, said he had intended to convert the building to apartments when he bought the former Kidder Peabody & Co. headquarters in 1996 for $15 million from the Helmsley family.

Witkoff is preparing an application for Liberty Bond financing for the project, he said. Congress last year gave the city and state the authority to issue Liberty Bonds up to $8 billion of tax-exempt bonds to finance the post-Sept. 11 rebuilding of lower Manhattan.

"I believe in the long-term future of downtown," said Witkoff. "Some very smart guys are putting their money into housing" downtown, "which will help lead to a new 24-hour community down there."

The building's location, two blocks south of Wall Street, on a square that gives it light from all sides, will also help, Witkoff said, as will improvements Goldman built and paid for, such as a new lobby and a 30,000 square-foot health club.