It's a seriously sweltering New York afternoon as I limp gratefully off the street into the slick, glass-fronted Yotel. In stark, cool contrast to the hectic, less-than-lovely corner of 10th Avenue and 42nd Street outside, the airy lobby feels like the Starship Enterprise. To my left, a bank of airport-style touch-screen check-in machines; to my right, the Yobot, 18m of hydraulic arm guarding a giant wall of left-luggage lockers.

The baggage beast is at rest, but the smartly attired staff, six of them in Star Trek-issue grey and purple uniforms, bid me a cheery welcome, and Julio, "my" doorman, ushers me to the self-service screens. Too many unexpected items in the bagging areas at Sainsbury's have made me suspicious of unmanned automation, but Julio is on hand to help, and the machine digests my details and spits out a room key.

I must admit to having had reservations about the place. Yotel is the brainwave of Yo! Sushi supremo Simon Woodroffe, and his business partner, CEO Gerard Greene. The idea came to Woodroffe in 2007 after he was bumped up to first class on a flight and decided to try combining the clever use of space in Japanese pod hotels with the luxury elements of first-class air travel. Three smaller airport Yotels have proved successful at Heathrow, Gatwick and Amsterdam's Schiphol, but the $315m New York outpost, which opened last week, is the pair's first city venture, and with 669 "cabin" rooms over 27 floors of "affordable luxury", it's no minor undertaking.

It's in a plum spot in Midtown, two blocks from Port Authority bus station (handy for airport connections), three blocks from Times Square, and four blocks from the airy oasis of Bryant Park and the ringing tills of Fifth Avenue. Central Park, the galleries and museums are a 30-minute stroll (or a $7 cab ride) away; even SoHo is just a 10-minute subway trip.

My premium cabin, the basic room, begins at $149 a night (plus tax), which is not to be sniffed at in a city where affordable accommodation is found only in far-flung boroughs or bed-bug-happy hostels. The boutique hotels generally begin at around $300 a night for a room built for a Borrower. For $149, I feared an airless, beach-hut-size hovel, but I'm pleasantly surprised. If I had a cat, I could certainly swing it. Yes, it is compact, at 12 square metres, but it's white and bright, with soft purple backlighting and a cunning use of space. The similarity to a Virgin upper-class cabin should probably not be surprising, since Soho (London) architects Softroom worked on both.

The queen-size motorised bed is stored upright, giving extra floor space in front of the wall-mounted flatscreen TV, and a tray-table is stowed away in the bed's armrest. There's a neat work desk, an office-style chair and small storage spots underneath the TV for keys, wallet, phone and other travel ephemera. The bathroom too – though a little reminiscent of a clap clinic – is well-designed, with a monsoon shower, square sink and sliding glass door to the toilet, to preserve modesty and mystique.

I stand five foot four on a tall day, so a compact cabin isn't an issue for me. So in the interests of thorough research – and thorough research alone – I invited a gentleman friend of greater stature to stop by and give me the verdict from his rather more lofty perspective. Even he found no need to fold himself up; once we'd located the button to get the bed into the flat position, he could happily stretch his full six foot four self out unfettered. If you're reading this, Mum, he kept one large foot on the floor at all times.

The only spatial issue is really that of storage: there's no wardrobe, just six hangers on two open hooks. Suitcases can be stashed away under the bed, but those heading to NYC to help the ailing American economy would struggle to store armfuls of Bloomingdale's bags.

Larger cabins are available, from the corner rooms (15 square metres and only $20 a night more), to the first-class cabins, some of which feature terraces, hot tubs and outdoor dining tables. Three VIP suites, starting at $1,500, are blingtastic shag-pads with fireplaces, pool tables and pumping sound systems.

Designed with the ethos of airline seating in mind, Yotels operate to a philosophy of functionality, so you won't find fripperies such as bathrobes, slippers or minibars in any of the rooms. Instead, there's free fast-connection Wi-Fi, complimentary continental breakfast, and guest fridges in the galley kitchens on each floor. There's no shortage of spacious public areas on the fourth floor, and the Studiyo has a cinema screen and yoga space. At night, these morph into social spaces for drinking, dining and hanging out.

Back down on the fourth floor terrace, the sun is setting over the Hudson river two blocks to the west, throwing a golden glow over the Gotham skyscrapers of Midtown. The Chrysler Building glitters to the east as we sink exceptionally good cocktails in New York's newest rooftop bar.

My leggy companion and I mop up a few mango and ginger martinis at the hotel's restaurant, Dohyo, named after the Japanese sumo wrestling ring, and where, like the cabin beds, the central bench tables are motorised, sinking into the wooden floor after service ends to form a dancefloor. The Asian-fusion menu is made up of small sharing plates – pork belly tacos, spicy tuna sushi, seared scallops and salt-and-pepper calamari – most priced between $6 and $12. With the atmosphere of an upmarket Wagamama, Dohyo deserves to be a destination in itself, particularly in this culinary dead-zone that is called (appropriately) Hell's Kitchen.

Sated from the sumo ring, I wander back upstairs to my lodgings, and draw the blackout blind. The six lanes of traffic outside are silent, thanks to the super-insulated windows. The thing that does disturb my dreams, unfortunately, is the incessant heavy slamming of other cabin doors along the corridor.

So the Yotel ain't the Ritz, but it isn't aiming to be. Give me a good location, a relaxed vibe and a reasonable price over a white-gloved waiter and a $40 breakfast surcharge any day. And give me another scrumptious mango martini as the sun sets over New York City.

• Virgin Atlantic (virgin-atlantic.com) flies from Heathrow to JFK from about £405 return