Britain’s commercial property market was dealt a body blow yesterday as the £2 billion flotation of Vector Hospitality was pulled at the eleventh hour.

Prospective investors worldwide shunned Vector — which was to be Britain’s largest property flotation this year — over fears that property prices are set to go into reverse.

Vector was to raise up to £2.26 billion to buy flagship assets ranging from the Waldorf Hilton and Cumberland hotels in London to the Malmaison and Hotel du Vin chains and De Vere and Village hotels.

Last night its advisers, led by Deutsche Bank, postponed the flotation indefinitely despite cutting back the float price by £460 million just a day earlier and giving themselves an extra 24 hours to complete the book-building exercise, a move that they said made them “confident” of getting it away.

Sources close to the process said yesterday: “It is to do with market conditions. The market has softened and it is fair to say that the property market has been softening for the whole period of the marketing. All that added up to a price the principals were not happy with.”

Concerns have been mounting about valuations of property stocks around the world over the past few weeks. One banker involved in the process said: “It’s frustrating. We looked like we were building a decent book and getting some very good expressions of interest, but as the market started to get away from us those expressions disappeared.”

Vector also came into heavy criticism from several of the UK’s largest institutional investors over perceived conflicts of interests surrounding the ownership and management of its assets involving Richard Balfour-Lynn. Standard Life Investments, Morley Fund Management and Henderson Global Investors ruled themselves out of the float. Cohen & Steers, of the US, one of the world’s largest real estate investors, also opted out.

Before Vector pulled its listing, the FTSE 100 had fallen 110.1 points to 6,522.7, the largest one-day fall since March. Shares in property companies in Spain and Russia have fallen recently, while in London shares in both Land Securities and British Land, Britain’s two largest quoted property companies, are trading at about a 16 per cent discount to their net asset values over fears that prices in the £710 billion UK commercial property have peaked.

The nail in the coffin for Vector investors came this week from the flotation of Realia, the Spanish real estate company, which cut its price by about 20 per cent.

One of Vector’s bankers said that concerns over the structure had been a factor in pulling the flotation, but Realia sparked wider concerns about the property market. “At that point, investors started to smell blood,” he said.

Vector was planning to use the funds to buy £2.6 billion of hotel assets from Marylebone Warwick Balfour, the property group headed by Mr Balfour-Lynn, Royal Bank of Scotland and Bank of Scotland and float as the first listed hotel group structured as a real estate investment trust. The hotel owners are expected to look at selling in the private market.

Vector’s bankers, led by Deutsche and supported by Goldman Sachs and UBS could have lost out on over £15 million of success-related brokerage fees.

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