Disclosure: I own about $60k in Realty Income plus however much my index funds own. The individual holding is less than 5% of my portfolio and less than 2.5% of net worth. I own $0 of VNQ.
If you are looking for diversification, look past VNQ. The top holding, Simon Property Group, consumes about 8% of NAV, which is really high for an index fund. SPG is a mall operator, and the previous comment suggested why malls may not be a good investment right now.
Realty Income is a triple-net REIT, meaning the tenant pays taxes, utilities, and insurance as well as rent. Its tenants are also commercial businesses but are mainly things like shipping companies, drugstores, dollar stores, and movie theaters. It will take Amazon longer to put these companies out of business than the shopping mall. E-commerce needs shipping, people need meds right away, and dollar stores will always be popular with segments of society (including my cheap ass). Movie theaters...well I don't know about that one. The company is also geographically diverse, having tenants in 49 states with no state representing more than 10% of revenues. An event like Harvey might wipe out some tenants in Texas, but the rest of the country will be fine while Houston bounces back.
A year ago, Realty Income was $72/sh, which was a ridiculously high price point compared to funds from operations. Post-election, when interest rates shot up, the stock went down to the mid-to-low $50s and I bought some more. It has moved very little since then, which has been nice because my holding is set to reinvest dividends.
The big risks with Realty Income are (1) management fucking up and (2) interest rates shooing up. The company has a 48-year track record, but any executive staff can make one or more bad decisions that tank a company. Interest rates can be a double-whammy by reducing profit and making bonds a more attractive alternative to all REITs. Conversely, falling interest rates are great for REITs.