Owls boss Luhukay elected not to renew Wallace’s contract and the 32-year-old will leave the Championship club when his present deal runs out this summer.
He told The Star: “I went and spoke to the manager last week but I knew before that what was happening.
“The manager wants to go with a younger squad and give the younger guys a chance.”
Wallace, signed on a free transfer in July 2015 following his release by Burnley, made 124 Owls appearances, hitting 13 goals.
He sustained a knee injury in Wednesday’s 2-1 defeat at Millwall which required surgery, ending his prematurely in February.
“It was disappointing I couldn’t play in the last three months to try and earn a new contract,” said Wallace. “It is just one of those things that happens in football.”
Reflecting on his highs and lows, Wallace said: “The highs were getting in the play-offs and scoring the goals against Arsenal and Brighton on the big occasions. It was absolutely brilliant to do that and meant a lot to me. We obviously didn’t get in the Premier League which was a shame.
“The real low was getting injured for the last three months of this season. It was really bad timing but these things happen.”
Wallace says he is not in a hurry to sort out his future.
“We will wait and see what movement there is over the next few weeks,” he said. “My aim is to stay in the Championship but that’s out of my hands.
“Hopefully someone will take a chance on me. I believe I’ve still got lots of years playing at this level.
“I will be back running in a couple of weeks and get myself ready for summer. The most important thing is to get fit.”