The Championship side are willing to allow the Scotland international to leave on a free transfer, but they are also willing to consider a loan move.
The 28-year-old, who is out of contract at the end of the season, joined Blues from Swindon in August 2012.
He has since played in 159 games for the club, but has been limited to just one appearance this season.
"We have had a very good chat," boss Gianfranco Zola told BBC Sport. "I've told him very clearly that I don't mind if he wants to stay.
"He has players in front of him in his position, but I've told him that If you want to stay and fight and you deserve to play, then you will play."
Caddis is a player whose name is imprinted in Birmingham footballing folklore, having scored the late goal at Bolton that kept Blues in the Championship on the final day of the season, in May 2014.

The airlines announced that they would no longer transport lion, rhinoceros, leopard, elephant or buffalo remains.
They have not, however, given official reasons for their announcements.
Delta flies direct to a number of African cities and was subjected to an online petition to ban such shipments.
American Airlines and United fly to fewer sub-Saharan cities than Delta, but United said in a tweet its decision to stop carrying trophies was "effective immediately".
United spokesman Charles Hobart said: "We felt it made sense to do so."
Cecil was shot illegally in July by US dentist Walter Palmer of Minnesota. Zimbabwe is seeking his extradition and that of a doctor from Pennsylvania, named as Jan Casimir Seski, who is suspected of killing a lion in April.
Mr Palmer is believed to have paid about $50,000 (Â£32,000) to hunt Cecil, a major tourist attraction in the Hwange National Park.
He says he thought the hunt was legal and was unaware Cecil was protected, but the killing triggered a huge online backlash.
Delta would not answer questions from journalists as to why it made its decision on Monday, nor would it detail how many hunting trophies it has transported in recent years.
"Effective immediately, Delta will officially ban shipment of all lion, leopard, elephant, rhinoceros and buffalo trophies worldwide as freight," the company said in a brief statement.
Its announcement came as several other airlines indicated that they are - or soon will be - stopping the transport of all trophy-hunting kills.
As recently as May, Delta said it would continue to allow such shipments.

The technology is being trialled at New York Red Bulls' stadium, with a video assistant referee taking 30 seconds to review a challenge in a Red Bulls II match against Orlando City.
A screen at the side of the pitch helped the officials decide to dismiss Orlando's Conor Donovan for denying a goalscoring opportunity just outside the penalty area.
Video replays will be used to advise on "game-changing" decisions in United Soccer League matches - the third tier of US football. That includes goals, red cards, mistaken identities and penalties.
They will also be tested in six other countries in the next two years, including Germany and Italy.
The game's lawmakers, the International Football Association Board (IFAB), wants to decide by 2019 on whether to introduce video replays across the sport.

Failed leadership candidate Lisa Duffy was having dinner with her staff in Bournemouth on Friday.
No action was taken against the curry house, which had completed pre-employment checks.
UKIP has long campaigned for tougher border controls to cut illegal immigration.
Jay Beecher, a spokesman for Ms Duffy, said: "Watching our chef running away into the night, his apron flapping in the wind, was a surreal moment.
"Politics can sometimes be such a stale and serous affair, so you have to see the funny side of things.
"In this case too, I couldn't help [but] be tickled by the irony."
The Border Agency questioned staff about their right to work and live in the UK.
Diane James was elected ahead of Ms Duffy to succeed Nigel Farage as the UKIP's new leader on Friday.
Birmingham defender Paul Caddis has been told he is free to find a new club after more than four years with Blues.
[NEXT_CONCEPT]
Delta, United and American Airlines have banned the shipment of big-game trophies on flights after the illegal killing of Cecil the lion in Zimbabwe.
[NEXT_CONCEPT]
Video replays were used for the first time to send off a player for a professional foul in a Major League Soccer reserve match.
[NEXT_CONCEPT]
Immigration officials raided an Indian restaurant during a UK Independence Party conference dinner, sending the chef "running into the night".