When Kingdom Hearts 3 started development it was sharing the same engine as Final Fantasy XV. The Luminous Studios Engine was in place for around 14 months when suddenly it was revealed that the engine for the upcoming game was switched over to Unreal Engine 4.
The transition took place over three months, with the news first coming in October 2014 as Nomura said the transition occured due to problems with Luminous to December 2014 when Tai Yasue confirmed that development on Kingdom Hearts III was moving forward again.
During the Square Enix Presents panel, Tai Yasue confirmed there was a bit of a learning curve to Unreal Engine 4:
There was, I guess, a learning curve for our whole team. We're actually a big team right now, a lot of people, and we're actually learning and customising the engine.
This, I think, was a very good experience to do that. For us the important part of using next generation technology is being true to the Kingdom Hearts series but also really taking it forward so a lot of the experiences in the Kingdom Hearts series are stylised, a lot of magical spells for example, we really wanted to keep that so we arranged the engine to move that way.
But at the same time you see a lot of realistic lighting, puddles for example that look real and I think that makes it look gorgeous and those are things we really want to pursue as well.
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