...therefore Pep Guardiola still needs Kyle Walker's services at least until next season.
Of course, but the problem is that Pep wouldn't need his services throughout the season, he will be picked specifically for certain games, just like what happened last season. I'm pretty sure Walker doesn't want that, he wants to move to a team in which he can start nearly every game, and he knows City can't give him that and this is why they are offering him just a one year contract. If kyle Walker leaves City, it is because he knows that his game-time at the Etihad would be quite limited next season.
Pep Guardiola may not include Kyle Walker in his regular XI in Manchester City's playing combination, meaning the defender may have to spend most of the season on the side bench, and he realizes that he plans to leave Manchester City. It is much better for a player to perform regularly in a relatively small team than to warm the site bench for a big team. If kyle walker can go to a small team and perform consistently then the big team will definitely show interest in taking him next season but sitting on the side bench never improves a player's career rather that player's career deteriorates. Kyle Walker may want to perform regularly for another club to make his career shine a little more.