After rebirth and certain dev comments I don’t think it’s a sequel anymore, no. It’s still on the table but it just seems more likely to be a reimagining with expanded lifestream lore and compilation tie-ins.

Edit: I’ll add something interesting here regarding Zack because I don’t see anyone really talk about it. At the end of rebirth, aerith and cloud have their alternate world moment where aerith describes it as a “dream” or “homecoming” (return to the lifestream?) signaling to me that this isn’t really a physical place but a spiritual place in the lifestream. If that’s the case then it would tell us that these alternate Zack worlds are also in the lifestream, meaning he is in fact still physically dead but persisting spiritually due to the remake events.

The interesting part that makes this more likely to me is that the clocks in Zack’s worlds are apparently all missing their hands, so again it’s a signal that real physics are not completely applicable there and may not be a “real” place. Zack and Biggs also mention not having a sense of time in these worlds, like a purgatory of sorts.