I have a portion of my portfolio in REIT's. They are a great source of diversification, and an income generating asset that should appreciate in value over time.
Of course, in this market environment, REIT yields are pretty low. But that's true of just about all asset classes these days.
I personally own VNQ, which is a broad REIT covering most of the US market. I also own VNQI which is also broad based, but covers international real estate.
How much you allocate should be determined by your own personal risk tolerance.