Although I had a bad experience in the hostel, as the day I arrived two of my roomates had been robbed of their cameras and mobile phones. Fortunately my flight was delayed and when I checked in this incident was happening, so I just avoided it. The hostel is the best option for backpackers in Sandakan, with very friendly and attentive staff. It's situated on the promenade of the city, a few metere from the water, and in the commercial area, a short walk from the bus terminal and the main market, with lots of restaurants in the area.
Hotel Sandakan (Sandakan Sabah-Malaysia) has air conditioned rooms, with a hair dryer, wireless internet, non smoking rooms, mini bar, coffee-tea facilities, cable TV and a safe. There is also a lounge and restaurant. 3 star category. The hotel can host weddings.