There was no loss of life as the 150 labourers from Kashmir living in the hostel were away at work when the blaze started.
The fire broke out at 11.10 AM and engulfed the hostel and the timber depot which went up in flames within no time.
Property worth lakhs of rupees was destroyed but there was no loss of life as the labourers had gone out for work, said Sanjay Chauhan, Mayor, Shimla Municipal Corporation, who was on the spot.
Firemen stopped the flames from spreading to another timber shop and other buildings in the thickly populated area.
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The narrow road leading to Auckland tunnel and Sanjauli area was cordoned off to avoid any hindrance in fire-fighting operations.
The Corporation is making arrangements to provide accommodation to the over 150 affected labourers.
The police have registered a case and investigations are in progress.