The Gunners have faded during the final weeks of the campaign, taking nine points from a possible 24, while City have won nine on the spin as they claimed the title with three games to spare.
But asked if he thinks Arsenal have the core of a squad to compete again next season, Xhaka said: “Yeah. We have to think about it.
“I mean we played a great season but we have to keep going, we have to take the next step because it will be much more difficult next season than this season. We know that.
“That’s why the board and the coach will decide what will happen - but as players we have to be ready for everything.
“It is easy to say now where [losing the title] happened. I mean, we know maybe the West Ham and Southampton game killed us a little bit.
“But still, the other games we had everything in our hands. Of course, there was the Man City game where we lost, but still after that I think we need to try and we need to keep [winning] as long as possible to be there, but we didn’t.
“Against Brighton we lost clearly. [Against Nottingham Forest] as well it was a very difficult game.”
Arsenal have surprised everyone this season as many predicted they would have to fight to finish in the top four and qualify for the Champions League.
When asked if Arteta is the right man to lead them to a title, Xhaka said: “You can forget this question - he is more than the right manager for this team.
“We don’t need to forget how we worked for 11 months. Even when we lost now in the last two games, of course the people see what happens now, but don’t forget the 11 months we worked.
“If someone told us before the season that we will be here, I think everyone would have signed it. Our goal for sure was to be back in the top four. Now we are second.
“Of course when you are so close to the title, you want to win the title. But we are there where we are, deserve to be where we are, and let’s see what happens next season. We have to go and do the next step.
“Yes of course it is a sad day for us, for everyone, for all the Arsenal fans. We didn’t want to end like this, but it happened now and the title is gone.
“It’s maybe difficult to speak now about what happens next because we are disappointed and sad, but we have to keep going. We have worked 11 months very well, I think. Let’s enjoy the last game at home and let’s look forwards.”