The Hat, Madrid: The design-driven hostel concept has arrived in style in the Spanish capital

On the face of it, few things about The Hat say "hostel", though that's technically what it is. The lobby, with its dangling filament lights, industrial finish and quirky murals by Spanish illustrator Yembara, is definitely more boutique hotel than backpacker base.

Upstairs, there's even a rooftop bar that buzzes all the way through from Monday to Sunday night – much like the Spanish capital itself. The clientele does veer towards the younger side, but not exclusively so, with a pleasant mix of friends, thirtysomething couples and business travellers in residence during my stay. There are dorms, of course, but also private doubles. Add to that the facilities of a hotel and the food of a B&B, and you get a stylish new concept for Madrid.

THE BED

The Hat stands in a 19th-century mansion, a few steps south of the Plaza Mayor – Madrid's main square. From the street-level lobby, a wrought-iron staircase leads up to 42 rooms, holding 220 beds in various configurations. Family bedrooms come with one double bed and two bunks for children, while the "Suite Too Much" private doubles have walk-in monsoon showers, flat-screen televisions, and Juliet balconies. The dorms fit between four and 10 beds, crafted from pine by Spanish design firm Aaprile, which did the interiors throughout.

There are toiletries in the doubles, but everything else is still stripped back to the bare necessities – so don't expect robes or room service. It's also worth noting that although The Hat makes a commendable effort to blur the lines between B&B, hotel and hostel, at times it still has the late-night and early-morning noise of the latter. Despite that, you'll still be surprised at how stylish even the most basic rooms are.

… is served in the lively open-plan lobby until 10.30am. If you're in a private double, a "Super Breakfast" is included in the room rate, with filter coffee, orange juice, yogurt and fruit, plus a different bread roll each day, stuffed with delicious fillings such as Ibérico ham or cream cheese. Those in the dorms can load up at the buffet with toast and pastries.

THE HOSTS

Owner Alfonso López Roldán worked in marketing for 13 years before studying business in California. It was there that he settled upon the idea of The Hat. Returning to Madrid, he launched his boutique hostel concept in July. Alfonso leaves the day-to-day running of The Hat to his team of young, fashionable staff, who are on hand to tell you about the many perks for guests – including free daily tapas tours, bike hire and affordable airport transfers (€9 each way).

The Plaza Mayor's below-par tapas bars and street performers may be underwhelming, but The Hat's location next to it means you're right in the centre. To the south is La Latina district, famed for its great restaurants. A favourite was Casa Lucio (00 34 91 365 82 17; casalucio.es) at Cava Baja 35, which is known for huevos rotos (broken eggs over chips), but also serves an unmissable sirloin steak (€23). Another highlight is Taberna Matritum (00 34 91 365 82 37; matritum.es), a Catalan restaurant and wine bar at Cava Alta 17 that's known for its desserts – try the crema Catalana (€5.55) for a Spanish take on crème brûlée.

La Latina is also home to one of the world's largest flea markets – El Rastro – which runs down Ribera de Curtidores on Sundays from 8am-3pm (elrastro.org). Finish up with lunch at the Mercado de la Ribera (00 34 946 023 791; mercadodelaribera.net), an indoor market filled with tapas stalls (plates from €5).

A short walk east takes you to the city's three world-class museums: the Museo del Prado (00 34 91 330 2800; museodelprado.es; entry €14) with its collection of Spanish masters, including a room dedicated to Goya's Pinturas Negras (Black Paintings); the Thyssen-Bornemisza (00 34 902 76 05 11; museothyssen.org; entry €10/£7.90) where works by El Greco stand out; and finally, the Reina Sofia (00 34 91 774 1000; museoreinasofia.es; €8/£6.30), home to Pablo Picasso's Guernica.

THE PIT-STOP

For an excellent local bar just a few steps from The Hat, stop at El Cogollo (00 34 911 96 03 51) at Calle Lechuga 3, where head-spinning servings of vodka con limón cost €6. Worth venturing further afield for is the Mercado de San Ildefonso (mercadodesanildefonso.com) a new market complex of bars and restaurants at Fuencarral 57, started by chef David Delgado Patricio, who's also responsible for the food at The Hat.

THE ESSENTIALS

The Hat, Calle Imperial 9, Madrid, Spain (00 34 91 772 85 72; thehatmadrid.com). Doubles €65, dorms from €17pp, both including breakfast. For more information, see spain.info.