The 1-1 draw with Real Madrid saw Roberto Mancini's side fail to reach the knockout stages for the second consecutive season, and must now beat Borussia Dortmund in matchday six to stand a chance of dropping in to the Europa League.
Despite having to face three other domestic champions in Group D, Zabaleta is adamant City should have comfortably secured progression to the last-16 stage given the quality of the squad.
"We are obviously disappointed about the result as it was our last chance to get close enough to Real Madrid and Borussia Dortmund, and play the last game with an option to go through to the next stage," he told The Guardian.
He added, "Now, the chance has gone and it's hard to understand. It's the second year in a row that this has happened. It's hard to see when you see the players that we have."
City now faces the daunting task of beating Dortmund in Germany next month to guarantee it remains in European competition, with the game taking on an extra importance Zabaleta never imagined it would at the start of the season.
"We expected more," the defender conceded. "When you see the squad that we have, you want to try to go through to the next round. Now we have a chance to qualify for the Europa League.
"It is always good to play in Europe. That was not our target at the beginning but now we need to go to Germany and beat Borussia Dortmund and wait for the result between Real Madrid and Ajax."