State of Decay 3 was announced during an Xbox showcase way back in 2020, but things have been dead ever since. There hasn't been any sign of life from developer Undead Labs, which was acquired by Microsoft after the success of State of Decay 2. It may not be the most popular series, but it has garnered a cult following that's been hungering for the third game ever since it was revealed.
Unfortunately, despite it being two years since the announcement, it seems we're in for a much longer wait. As spotted by XboxEra, a job description on LinkedIn suggests that Undead Labs could still be in the process of setting up an Unreal Engine 5 studio for the game. I don't know how games are developed, but setting up a studio is usually one of the first few steps.
The job description in question belongs to Simon Sherr, an animation director for Undead Labs, it reads: "Developing a new microsoft studio under Undead Labs in Orlando Fl, Directing animation and Animation Technology in UE5 for Microsoft XGS Undead Labs’ “State of Decay 3” and fostering cross-studio animation technology collaboration and animation technology initiatives across XGS."
Considering that the animation director has been working for Undead Labs for seven months, and even if we assume that they haven't changed the description since then, setting up a studio and bringing it to game developing capacity is a long process. So it wouldn't be too presumptuous to say that State of Decay 3 is still in relatively early stages of development and we're not going to see it any time in the near future.
We already knew that State of Decay 3 will be using Unreal Engine 5. Back in July last year, a job listing by the developer required a sound designer whose job it would be to "design tailored SFX for the game utilizing custom recordings and library assets." While the sound designer would be expected to work using a program called Audiokinetic Wwise, the implementation in-game would be done “through Blueprints (UE5)." Of course, UE5 refers to Epic's latest game engine that is currently out in early access.