Schalke boss Felix Magath on Monday hailed the 24-year-old as "the best goalkeeper in the world" and insisted he was under no pressure to sell.
But Kahn believes Neuer would benefit from a move away from Gelsenkirchen.
"I think he will become world class," said Kahn in Bild.
"But he has to take the next step and join one of the great clubs.
"Then he can play in the Champions League regularly, with Schalke that is certainly possible sporadically but not every year."