After narrowly losing the first leg of their knockout play-off tie 3-2 at Etihad Stadium, City were a distant second best in Madrid, with Kylian Mbappe scoring a hat-trick as the hosts won 3-1 on the night to ease through 6-3 on aggregate.
“We couldn’t defend well with the movement from Mbappe and it was more difficult,” added Guardiola.
“The best team won, they deserved it. They were better. What we have to do is accept the reality and move forward.”
City striker Erling Haaland was not fully fit because of injury and was named on the substitutes’ bench.
The Norway international did not take part in the warm-up and was not brought on despite his side trailing.
“Erling tried to train,” Guardiola said.
“Apparently with the images we have done he is fine but he had discomfort walking. He said I am not ready, I don’t feel good.”
