Time Out says
Generator Hostel is one of the cheapest in town; it belongs to the British chain bearing the same name and specialises in quality and inexpensive accommodation. One of the draws is its wonderful terrace, which opens in the morning hours, so you can try a delicious breakfast. Later, their cocktail list is perfect for enjoying hot summer nights in Madrid. You'll find a young and modern environment, but go prepared, because even though the accommodations are cheap, the food and drinks prices on the terrace are a tad high.