Well, there is some key differences between the two.
For one, REITs will operate well in this low interest rate environment. It's a little bit of a complicated structure, but REITs have to pay out a lot of their income, and as a result in order to grow they often have to secure external financing. Obviously with cheaper financing, mortgage rates and external debt are cheaper, resulting in less interest paid.
Banks on the other hand, don't necessarily perform poorly in a low interest rate environment, but they don't perform as well. This is because banks obviously generate a lot of revenue by loaning it out.
If you were to ask me if REITs would outperform banks moving forward, I'd say it depends on the REIT. Commercial/Office/Retail REITs I expect to struggle moving forward. These are your Riocans, Dream Offices, Smartcenters, Plazas.
But, if I had to predict, I'd say that there is a good chance industrial style REITs like our Foundational Stock Granite REIT to outperform major banks in this environment. Primarily because of the surge in demand that is expected for industrial style properties due to surging e-commerce, along with the low interest rate environment.
That being said, as you mentioned, diversification comes into play as well. I wouldn't solely invest in industrial REITs just because I feel they're going to outperform. I'd still own (and do own) Canadian banks. This isn't a one or the other situation.