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It’s going to be in a new city.
From the same website:
https://www.videogameschronicle.com/news/cyberpunk-2077s-sequel-features-a-second-city-that-feels-like-chicago-gone-wrong-reveals-creator/
So it’ll have a new city as well as Night City. Which is good - Night City has more stories to tell. All the TTRPGs were based in NC, as was Edgerunners. Leaving it behind completely would be wrong.
other location could be the moon, i think they intended for that to be DLC in 2077.
They did do a lot of teasing of the moon and the Crystal Palace space station, but there are also signs in-game about a high-speed rail line to Chicago opening in 2080. So the “Chicago but wrong” descriptor might be exactly what it says on the tin.
It’s going to feature a new city as a second location. Night City will still be there in some way, as the story of Cyberpunk is mostly about Night City. If it didn’t have Night City, it would still be cyberpunk, but it wouldn’t be Cyberpunk.