The decision was made after CW brass saw cuts of Episodes 8 and 9, which have been very well received. Filming a standalone Flash pilot would allow the creators to better flesh out the super-hero's story and his world on a bigger budget, as pilot budgets are significantly higher than episodic ones. While no longer a full-blow spin off, The Flash still will be tethered to the Arrow universe since the the character (as Barry Allen) will first be introduced there. In light of the pilot order, it is unclear whether Episode 20 of Arrow will feature the Flash or any reference of him.
So no superpowers on Arrow itself now?