Austin, who has struggled with shoulder injuries for several years, was expected to complete his move to the Premier League new boys on Monday night only to fail his medical at the KC Stadium because of a problem with his knee.
Bruce has already strengthened his squad for the new season with the additions of Allan McGregor, Maynor Figueroa, Curtis Davies, Ahmed Elmohamady and George Boyd, but he must now start again in his search for another striker.
"Well first and foremost it is totally disappointing for him in particular," Bruce told Sky Sports News.
"We have been working on it for the last three or four weeks behind the scenes but unfortunately he has a bit of a knee problem and with the amount of money at stake in the transfer fee the problem has shown up pretty visibly with the scan and unfortunately that has put a stop to the deal.
"So it is disappointing, very disappointing, and I have to say on behalf of us all particularly disappointing for Charlie the boy.
"It is totally frustrating, but one thing you have got to do and where football is now the sport science and medical department is now bigger than it's ever been and rightly so with the amounts of money that is being thrown about
"But obviously there is a problem there and a problem which we didn't think we could mend quickly and we have decided to put a halt to it.
"I haven't spoken to him this morning. I was with his dad and agent last night and he is obviously disappointed, but I just hope for him the situation doesn't flare up for him and he can go on to still have a very good career.
"It's no secret we need a striker and we possibly need a couple of them and that's been the aim since we finished the season. That is still on the agenda.
"It is always the most difficult to find because everyone is after a striker, but we go back to drawing board.
"We've still got six weeks before we start really and let's hope we can go somewhere else."