How to tell a Prof you are no longer applying to a PhD program at his university?
It can be hard to get a PhD position, as there are often only few positions but many candidates. Therefore, it is not uncommon to apply to more than one and the professor should be familiar with people finding a position elsewhere.
Telling him as soon as you made up your mind is the right choice, as this gives him the chance to look for other candidates. Thus, I would be honest with him and tell him what you wrote in your question.
As long as you are friendly and honest, there should be no problem. The only thing to remember is that professors are mostly busy people, so don't steal his time (e.g. by changing your mind in 2 weeks and wanting to work under him again...).