Manchester City looked a bit afraid of Real Madrid, says Chris Waddle

Real Madrid go on to play city rivals Atletico in the Champions League final on 28 May in Milan

Manchester City were too cautious and lacked creativity and tempo in their Champions League exit to Real Madrid, says former England winger Chris Waddle.

Manuel Pellegrini's side missed out on their first Champions League final, losing 1-0 in their semi-final second leg in the Spanish capital.

Gareth Bale's cross was deflected in by Fernando, settling a tie Madrid dominated, with City uninspired.

But, though he was disappointed with their performance, BBC Radio 5 live pundit Waddle says there are still grounds for optimism for City.

• Pellegrini has no regrets after exit

• Podcast: 'Man City out with a whimper'

• Listen: 'Man City did not play the English way'

• Relive all the drama from the Bernabeu

What went wrong in Madrid?

"It's no disgrace at all, losing to Real Madrid, it's just the manner of the defeat," said Waddle.

"Manchester City never played at a tempo. They looked like they were a bit afraid of Madrid. The home side could have won by three or four.

City talisman Sergio Aguero failed to make an impact in either leg of the semi-final

"Goalkeeper Joe Hart kept City in it over the two legs and in Madrid they had nothing to lose - score the first goal and you win the tie basically - but they passed short and square.

"If you go for it and end up losing, the fans will walk away thinking: 'We had a real go.' But you can't say that about City.

"Sergio Aguero was shackled and there was nothing going forward. They were looking for creativity but found nothing."

So the Champions League remains the goal?

Waddle said City reaching their first semi-final in the competition represented a "good season in the Champions League".

But he added: "The goal was to win it because they've invested heavily for that - and a club of their stature should be challenging for it.

"They have got a fantastic academy, facilities as good as any in the world, owners who are as wealthy as any in the world, and over the past few years they have won trophies. They are a force now."

City's immediate concern, before Pellegrini is replaced by Bayern Munich coach Pep Guardiola in the summer, is to finish in the top four in the Premier League.

City, who are fourth, lead Manchester United by four points, though the Red Devils have a game in hand.

"Over the course of their history they haven't won as many trophies as Liverpool or Manchester United but that's why they've gone out and got one of the best managers in the world," added Waddle.

City opened their new £200m, 80-acre training complex - across the road from Etihad Stadium - in December 2014

"Now the most important thing is finishing in the top four this season. Pep Guardiola wants to be in the Champions League next year, not the Europa League.

"You'd expect them to be closer to Spurs and Leicester at the top of the table but there are still a few games to go and it will be interesting to see how they react after this defeat."

City host third-placed Arsenal on Sunday before finishing their season with a trip to Swansea on 15 May.

Is Pep the man to do it?

Guardiola's Bayern were edged out in the other Champions League semi-final, losing to Atletico Madrid on away goals.

"I don't think he's been tarnished in any way by his side being knocked out," said Waddle.

"Bayern were very unfortunate. They dominated and dominated but just couldn't put the ball in the net. I don't think they could have done any more than they did.

City hope Guardiola will make them regular Champions League contenders - but he has been beaten in the semi-finals in each of his three seasons at Bayern

"Guardiola's teams are attractive, they want to score goals and they always play with tempo. City under Guardiola will be exciting. Everybody loves the way he plays, it's the football that everybody admires.

"He'll go in there and sign players, clear out what he needs to clear out. He'll have a big budget because everyone was after him but he'll go for the younger players, energetic players who can cover the ground and be fit.

"It won't happen overnight, but Guardiola will believe he can take the club to the next level."

How Man City reached the semi-finals

Group stage

• Man City 1-2 Juventus - The 2015 finalists, having trailed 1-0, score an 81st-minute winner

• B Monchengladbach 1-2 Man City - Sergio Aguero scores a last-minute penalty in Germany

• Man City 2-1 Sevilla - Kevin de Bruyne's 91st-minute goal earns City a crucial win

• Sevilla 1-3 Man City - City's most convincing win secures their place in the last 16

• Juventus 1-0 Man City - Italians Juve join City in the knockout stages

• Man City 4-2 B Monchengladbach - Three goals in the last 11 minutes see City come from behind to win

Last 16

• Dynamo Kiev 1-3 Man City - City take command with an impressive win over the Ukrainian champions

• Man City 0-0 Dynamo Kiev (Agg: 3-1) - City reach the quarter-finals for the first time despite a sluggish draw

Quarter-finals

• Paris St-Germain 2-2 Man City - De Bruyne and Fernandinho score away goals for City

• Man City 1-0 Paris St-Germain (Agg: 3-2) - De Bruyne scores again to secure a semi-final place

Semi-finals

• Man City 0-0 Real Madrid - Ten-time winners Real are held thanks to two late Joe Hart stops

• Real Madrid 1-0 Man City - (Agg: 1-0) Pellegrini's side are knocked out after an uninspiring display