Bale has been linked with a return to the Premier League at Manchester United and former club Tottenham after hitting out at his Spanish club for "blocking everything at the last second" as he tried to get out to move to China last summer.
Modric told The Times: “For almost 12 years we are playing together and it's a difficult situation for him and for the club.
“Gareth needs to know what he wants to do. He is a grown man and needs to decide what is best for him.
“Does he feel happy here or does he want to try something else? But, for me, Gareth is still a great player and still has a lot to offer in football.
"It just depends on him, if he has enough hunger or desire to keep going. I think he has but whether his situation finishes here or continues, he can still be an important player."