The Danish international has enjoyed a positive start to life at the Emirates Stadium following his January move away from the Spanish capital.
Los Blancos head coach Zinedine Zidane is rumoured to be open minded on the 22-year old’s future with the defending La Liga champions, however, Arteta is likely to make a permanent offer for him this summer.
“Our contract with him is until the end of the season, but we let him play, develop and be as happy as he can,” as per reports from Mundo Deportivo.
“I talk to him every day, I see his face, his body language and he seems to be very happy here.”
Arsenal could be challenged in their interest in him by Premier League rivals Liverpool and Chelsea, with Real Madrid likely to increase their asking price from €25m to €40m if a bidding war is triggered.
Zidane could be tempted to part ways with the former Real Sociedad loanee if he needs to raise funds for summer targets, with the French boss linked with a move for Rennes superstar Eduardo Camavinga.