KDB is obviously and of course still capable of playing better, but sometimes you just need to move on. KDB is not young and he is also not running as much as he used to, he is still a great playmaker and he is still a distributor and passer, but that doesn't mean he is good enough to be at City or just let them be the worst it can be if they end up keeping him forever. He is not going to get any better after this age, he is going to just get older and worse, so it is time for them to find someone better.
33 years is not that young but not that old too. Most players at this age could play from 2 to 4 additional years without much problems for their performance. Kevin de Bruyne is a good asset for Manchester City, they will not let him go easily even though discussion between them didn't start yet. Kevin de Bruyne will not try his chance elsewhere because most experiences aren't positive at this age. He will try to stay at City even with a lower contract before seeking another club. MLS Inter Miami is interested on him by the way.
I don't think that City is ready to extend KDB contracts since there are rumors that he's leaving the club. City needs young and vibrant players, KDB performance can easily be affected by aging which no one can tell, if he can still keep up to his performance next season. However, I feel that if City does not care about extending his contract, he should move to Inter Miami, where he would be more valuable.