There is certainly a possibility. It may not have the automatic high traffic and demand that central London enjoys, but as long as you can think of plenty of reasons why it’s a great area (and convey these to potential guests) then you can stand a chance.
It is MUCH easier to set up shop in a place where there is already high demand, because you can count on having guests and just concentrate on running the hostel. If you decide to open in a less popular zone, then you have the added task of marketing your region in order to build up people’s interest and create demand. That’s a pretty big extra task.
I have been told that everything gets much less expensive as soon as you get out of London. If this is the case in Croydon, could you bill the city as the “affordable home base” for all of southern England? You could organize day trips and tours to supplement the hostel income while making sure that your guests don’t miss any of the hotspots.