The Basque outfit would have moved into fourth position in La Liga with the three points, but they were undone by two second-half goals from Youssef El-Arabi.
"I have no words to explain the game. We have given a completely different account of ourselves," he told reporters at a press conference.
"Granada has adapted better to the pressure and we have been outplayed. We expected more of ourselves and I have to reflect on how we prepared for the game."
The defeat left Bilbao in fifth spot in the table.