Of course, if global warming is to be believed, the supply of land may actually dwindle in the future, which, from a purely investing perspective, would only benefit the lucky few with dry holdings.

Nonetheless, with the burst of the housing bubble fresh in their minds, investors are understandably reluctant to invest once more in real estate.

Are there sound reasons for adding real estate back into your asset allocation? The answer, as always, is that it depends on the purpose of the investment and how the exposure would be gained.

There are several ways to access the real estate asset class besides owning a home or rental property. Many investors, depending on sophistication, risk tolerance, liquidity needs and time horizon, may choose between accessing real estate via private equity or through Real Estate Investment Trusts (REITs). Both methods have their pros and cons but for the average investor the more accessible manner to invest in real estate would be through REITs or commingled vehicles such as open-end mutual funds investing in a diversified portfolio of REITs.

While the liquidity and availability of REITs makes them an attractive means of gaining exposure to the this asset class, investors need to give careful consideration to their investment objective in the context of their market outlook.

Are your clients looking at real estate as a return opportunity in anticipation of a rebound in prices? Or, are they seeking reduced volatility through the addition of a potentially uncorrelated asset class?

Perhaps the most important initial consideration is whether or not the fundamental macroeconomic drivers behind the recent bubble are sufficiently unwound.

Here the news is mixed.

Some of the drivers are not likely to be repeated, at least in the extremes we saw over the last decade. Look at the once common belief that commoditizing loans spread the risks of default so broadly that the practice made individual underwriting insignificant. That has been disproved. Whether through government oversight or greater prudence on behalf of banks, lending practices appear to have been tightened.

It is certainly tempting to consider the deflation in real estate pricing. It's been felt most keenly in housing but has affected other real estate sectors as well, at times indiscriminately. The price drop begs the question: Have prices returned to something approaching their fair value? Indeed, is it possible there are even some undervalued real estate sectors?

According to the Green Street Advisors Commercial Property Price Index, commercial values have risen about 9% from their May 2009 low, but are still at roughly two-thirds of their previous highs. Pricing has firmed up, however. Sellers are feeling less pressure to act and a resurgence of well-capitalized buyers has been spotted. Some analysts have offered similar positive assessments of residential real estate beginning to improve.

A more cautious note emerges when considering the larger challenges to economic recovery. Deleveraging remains a long-term fundamental driver, and will likely remain so for some time. It also will remain a drag on lending, spending and economic activity for the foreseeable future, although to what extent we cannot be certain. That may dampen enthusiasm for real estate as a purely price appreciation opportunity, at least in the immediate term.

With the recent gyrations in the broader real estate market, many investors are justified in wondering whether the space offers any opportunities at all. So, let's focus on defining the different ways to access real estate from a non-residential investment point of view. Let's also discuss whether recent investment trends support various motivations for considering real estate as an asset class.

The biggest contributor to recent REIT performance has been the ability for many companies to access the capital markets by rolling debt and issuing equity to shore up their balance sheets. What this does essentially is buy many companies time, but it does not improve their fundamental outlook. And in fact a deeper look at many metrics employed to measure the industry's health suggest continued fundamental weakness, such as high vacancy rates across multiple different REIT sectors.

REITs with a heavy debt load generally suffered the most in 2008. In response, REITs were aggressive in cutting or suspending dividends to shore up capital in a very constrained capital environment. Other methods were employed to aid in the deleveraging process such as issuing more equity, which in turn diluted the interests of existing shareholders. But, the aggressive steps taken to address a more restrictive capital environment along with government support such as the Term Asset-Backed Securities Loan Facility (TALF) benefitted commercial mortgage-backed securities and helped pave the way for some form of support for the sector.